Higher shipping rates, resulting from attacks on ships in the Red Sea, as well as low water levels in the Panama Canal, are having a knock-on effect on manufacturing costs, a new report from S&P Global Market Intelligence has found.
Worldwide supply chains were "increasingly adversely affected by shipping delays in July", S&P chief business economist Chris Williamson noted, with shopping delays leading to a reduction in global export orders.
Following the disruption caused by the COVID-19 pandemic, shipping-related delays had all but been resolved by early 2023, S&P noted, however 2024 has seen a number of factors disrupt shipping, with Houthi rebel attacks on ships in the Red Sea extending shipment times by up to two weeks.
'Four Times The Average'
"The impact of these shipping delays has varied so far during 2024, but has picked up markedly in July, and is now running in at nearly four times the long run average," Willamson noted. "While this is still well below the peak impact seen during the pandemic, it represents an impact on supplier delivery times of the likes not seen by the Purchasing Managers Index (PMI) surveys in the 15 years of data available prior to the pandemic."
As regards the impact on manufacturing costs, the effect of increased shipping costs on production has hit levels not seen since February, S&P noted, however this recent spike is having less of an impact than during the pandemic.
"Furthermore, other factors such as energy costs and broader raw material prices are having an inflationary impact below their long-run averages amid weak demand, and labour cost inflation is now having an impact only modestly above the long-run trend," Williamson noted. "The overall inflationary impact from shipping therefore remains modest at the moment, and global factory input cost inflation dipped very slightly in July, albeit running the second-highest seen over the past 17 months.
"However, this will be a factor to monitor in the coming months as central banks seek assurances that inflation pressures are moderating to sustainably low rates."
Slower Delivery Times
Delivery times were slower largely across the board in July, S&P noted, with significantly slower deliveries to many European countries, such as the UK, Spain, the Netherlands and Greece.
However, there were a couple of exceptions, with Germany and Austria seeing faster delivery times in July.
