From rust buckets to gold mines

Singapore — Shipping companies are transforming rust buckets into gold mines in a modern-day alchemy that could fuel already rampant inflation for years to come.

Greek firm Euroseas bought it in 2019 for $10m when it was already a decade old. As world trade spiralled into chaos last year, it raked in $21m in just over 100 days at the highest daily freight rate in history for a ship of its size. But the surge in demand for consumer goods during lockdowns, congestion at ports that tied up ships for longer than expected, and a slowdown in new shipbuilding, partly due to uncertainty about whether vessels would comply with new environmental rules, all contributed to the shipping crunch and record freight costs.

The IMF estimates the container shipping boom in 2021 accounted for 1.5 percentage points of global price rises this year, or about a quarter of the US inflation rate. “The current still-high freight rates will continue to put pressure on consumer prices well into 2023,” said Jan Hoffmann, head of trade logistics at the UN Conference on Trade and Development. “I fear that freight rates will remain higher than pre-Covid for many more years.”

“Container shipping markets in general remain in extraordinary territory,” said Stephen Gordon, MD of Clarksons Research. Maersk posted record earnings in the first three months of 2022. Revenue leapt 55% to $19.3bn and it raised its forecast for underlying earnings this year before interest, tax, depreciation and amortisation to $30bn.

Some of the big shipping firms are using their profits to hoover up what cargo ships are left at sky-high prices, which will in turn help to underpin high freight rates and fuel inflation in the future, analysts said.

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