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Increasing trade costs amidst new delays place pressure on firms


UK firms are being forced to bear increasing trading costs as import prices rise across the globe. A BBC article reports that Scott Humphreys, boss of Peppermill Interiors, has recently seen a massive spike in shipping costs with the firm paying “$2,500 to $2,800 (£1,800-£2,000) to bring a 40-foot container from China. Now we're paying $16,000 - if we can get a booking." Mr Humphreys’ firm supplies furnishing to homes as well as bars and restaurants.


This massive increase in costs for logistics has therefore impacted the Peppermill business, and other importers budgets’ greatly. The increase in costs for importation, therefore, decreases the output a firm can produce in a given time frame, which means that supply for goods/services will fall, at least for the short term.


But it has not just been Mr Humphrey who has seen this increase in shipping costs, as other firms in the UK have also experienced serious bottlenecks in the global container shipping industry that have led to delays and pushed up prices. This rising price is due to a reduction in SRAS because of shipping delays and logistical issues. This means the ability to increase supply is heavily dependent, especially for TNC’s, on the availability of imports. If imports are scarce due to the rationing when prices are untypically high, firms are unable to produce more goods/services and so the supply curve on a micro-scale is inelastic.


The majority of these problems stem from one of the world's largest suppliers, Asia. Approximately half of the world's stock is imported from East Asia, mainly from China. It will typically bring in between 200 and 250 containers each year. These logistical issues within China stem from a recent COVID-19 outbreak which has a disruption in the container shipping industry. This causes many workers to take days off work in order to self isolate and protect themselves and others. Most recently, an outbreak of Covid-19 in China's Guangdong province had a significant impact on the Yantian International Container Terminal, one of China's busiest ports - triggering yet more hold-ups, and prompting warnings from experts that the knock-on effects could last for months, the BBC reports. This devastating news has been heard across the world trade routes and will therefore make it difficult for Chinese firms to export their goods/services in an economy that leads so heavily on the secondary industrial stage.


This has led to massive port congestion as Chinese suppliers find it difficult to meet rising demands of a global economy which is recovering due to successful vaccine rollouts. This comes along with the economy on a global stage being increasingly confident, especially in more developed countries at the forefront of inoculation, such as the UK who have already vaccinated 75 million people either once or twice. This shows as more people are confident to enter shops, and in fact, utilise foreign imports and also foreign travel in the near future, so demand for Chinese goods will rise. But this, therefore, increases the urgency for firms to be able to export products, and so suitable solutions must be established to ensure that trade and income can flow, despite the problems occurring with self-isolation, to allow the emerging economies to grow.

 

Written by Euan Taylor.


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