Breweries and most producers of consumer goods around the world are faced with skyrocketing prices for energy, raw materials and logistics. The sharp cost increase has lead to a decreased profitability and will force companies in turn to increase prices themselves.
The OECD is predicting that G20 consumer inflation (CPI) will hit 4.5% by the end of this year. Soaring commodity prices and especially exploding container freight prices are highlighted as a big contributor, adding 1.5% to G20 inflation.
The OECD’s shipping input index currently stands at 482 points, versus 100 in February 2020.“Before the COVID-19 pandemic, the cost of shipping a container from Shanghai to Los Angeles was approximately USD 1,600. Today, the amount to be paid for freight on the same route is USD 20,000,” explains Istanbul Chamber of Commerce (ITO) head Şekib Avdagiç to Turkish news service Daily Sabah. “If you're lucky enough to find a container,” he adds.
A similar price hike can be noticed on all freight routes around the world. The crisis was mainly induced by the COVID-19 pandemic which forced many shipping lines to reduce their service. Manufacturing companies around the world reduced their stock in order to save on costs of inventory. When business recovered earlier this year, companies tried to restock their inventory and shipping capacity was not big enough to allow for the increased demand. When companies realized that they might run out of stock and could be forced to stop production, they even ordered more than their normal needs thus aggravating the whole situation.
The same mechanism has applied to energy markets which also see a long-time peak in their prices.
Some experts predict that the tense situation in freight and energy markets could persist for the next year, however, it is more likely that the situation will start to normalize very soon when the backlog of containers waiting to be unloaded in the harbor has cleared and the overheating of the economy after the end of the pandemic has subsided.
First signs are already visible. According to a Bloomberg report, the rate for a 40-foot container on the busy Shanghai-to-Los Angeles trade route dropped last week by 8.2% from the prior week and shares of container lines like Maersk and Hapag-Lloyd have stumbled in recent days from record highs set in September.
Still, the world has completely changed since the COVID-19 pandemic and the supply chains of the world's major trading blocs, particularly from Asia to Europe and North America, are most likely to change. Many companies and countries have recognized how vulnerable they are in terms of procurement and wherever possible, local procurement will become more important again in the future, even at higher prices.
It is important to note that these processes cannot be tackled in the short term. In particular, the increased prices will continue to accompany us in the near to medium future.
The brewing industry has also recognized the signs of the times and have largely started to raise the price of beer. In Germany, for example, almost all major brewery groups have announced a price increase in recent weeks, not least to partly offset their losses during the lockdown in the pandemic.