Shoppers face price rises as retailers pass on higher freight costs

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By James Hall


Published: 12:30AM GMT 28 Feb 2010

An estimated 80pc of all the clothing and homewares sold on the UK's high
streets is imported from the Far East. However, the cost of shipping goods
from Asia has increased sixfold since last February, causing industry
insiders to predict that retailers will have to increase prices to recoup
some of the costs. Any price rises could derail the fragile recovery in the
consumer economy.

Last February the cost of shipping a 20ft metal container full of products
from China to Europe was around US$300 (£197), the lowest freight rate for a
decade. Last week, by comparison, mainland China's largest shipping company,
Coscon, said that rates for one of these so-called "20ft Equivalent
Units" (TEU) had risen to $1,400, plus a $510 so-called bunker
adjustment surcharge, an increase of more than six times.

Other companies' rates are higher. On Friday the Shanghai Shipping Exchange
said that freight rates on China's container ships have risen by 17pc this
year alone.

One retail industry executive said: "Come April, prices will have to go
up. This kind of cost increase is a normal cycle in the shipping industry
but it is usually a five-year cycle, not a six-month one."

The Sunday Telegraph has spoken to three of the UK's largest non-food
retail chains, all of whom confirmed that they have implemented special
measures in order to ensure that goods arrive in the UK.

The price rise has come about because the shipping companies took boats out of
service in 2008 and 2009 after demand dropped by 90pc. Around 10pc of the
total shipping fleet on Far Eastern routes currently lies mothballed and
idle. However, demand has now returned as global economies have recovered.
Yet supply levels remain depressed, meaning that prices have shot up.

Inactivity around Chinese New Year earlier this month made the whole situation
worse. Knowledge that the market would effectively shut down for a week led
to a spike in spot-market freight prices as logistics companies – who work
on behalf of the retailers – were forced to surrender to carriers' price
demands, according to Drewry, the maritime newsletter.

Some UK chains are known to have had containers full of stock left sitting in
ports for two weeks as they tried to find shipping companies with capacity
to take them. Some have resorted to air freight.

Andrew Traill, founder of The Shippers' Voice website and policy director of
the European Shippers' Council, said that some retailers could struggle to
get their goods over here at all. He said that shipping companies have
started to "gain the upper hand" and are telling retailers – and
the third-party logistics companies that they use – that they need to pay
the high prices or face seeing their goods stranded.

"The problem might be getting the supply over here. Any [retailer] that
says 'no' tends to be confronted with 'pay and you'll get the space' or
'don't and you won't'," he said. Mr Traill added that he does not see
the spare capacity coming back "to a great degree" over the short
term.

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