MNI: Ship Data Assuage Red Sea Inflation Fears-Researcher

Fears of an inflationary impulse in the UK from disruption to shipping through the Suez Canal appear to be overblown, a researcher at Oxford University and one of the developers of the PortWatch project told MNI, noting that shipping costs appear to have peaked already and European port traffic has held up relatively well.

A 45% slide in ship numbers through the Suez Canal in January versus a year earlier was balanced by a corresponding 75% rise in traffic around the Cape of Good Hope. Suez Canal traffic plunged 57% year-on-year in February. But the decline in the number of ships calling at the ports in Europe has been moderate, despite delayed arrivals, said Oxford University's Jasper Verschuur.

Overall disruptions to supply chains and any knock-on inflationary effects look slight, said Verschuur, whose joint IMF/Oxford Portwatch project uses ship security satellite data to monitor trade-related disruptions.

Around 25% of seaborne imports to the UK, which has a relatively high proportion of maritime trade, come through the Suez Canal, less than average compared to EU counterparts, Verschuur said. The UK suffered the most widespread increase in supplier delivery times in January, according to CIPS Purchasing managers data, but the numbers of manufacturers reporting delays was still modest, at 12%.

"The UK is not one that we identify as being … particularly at risk compared to others on a cross-country bases. But obviously, additional detours that are taken are quite substantial for reaching the UK," Verschuur said.

January saw a 12% fall in the number of ships calling at sub-Saharan African ports versus a year ago, compared to an 8% fall in the EU and 6% in the Middle East, he said.

BOE CAUTION

Policymakers including the Bank of England Monetary Policy Committee's Catherine Mann, have cited upside inflation risks from Red Sea turmoil as a reason for caution over easing policy.

"There was initially talk about, like whether this would raise prices in UK supermarkets ... this is very likely not going to be enough to really push that up ... The main mechanism for that was the increase in shipping costs that would then be passed through to the prices but it seems like now, from the latest numbers, the shipping cost inflation has reached its peak. And it's definitely not at the levels of pandemic shipping freight rate increases," Verschuur said.

The New York Fed's Global Supply Chain Pressure Index based on sub-indices including shipping costs and supplier delivery times in the global CIPS surveys, has held steady, coming in at -0.11 in January, up from -0.15 in December and in-line with its historical average.

One component of the GSCPI, the HARPEX, which reflects prices changes in the global container ship charter market, was up just over 30% in early February from its early December low, far removed from the 200% plus increase in some spot container prices. Another shipping cost component, the Baltic Dry Index, was around 7% above its 2023 average in February but down 50% on late November and 37% lower since Red Sea disruptions began in mid-December. (See MNI INTERVIEW: China Export Container Shortage To Improve)