From Rabobank, February 27:
Summary
- The Red Sea crisis continues, but container freight rates on some routes have now stabilised at a higher level, while cost increases have broadened out
- If sustained, higher logistics costs could still materially affect inflation in the Eurozone: we assess the potential impact from several angles – assuming no further geopolitical shocks
- Our base case assumes a 0.5%-points contribution to HICP over the next 24 months, but we provide a range of lower, and higher, estimates based on a number of plausible scenarios
- Higher inventories, supply-chain resilience, and soft demand may dampen any impact, while a stronger pickup in consumer spending and Europe-specific exposures may amplify this shock
More stability? Far from it…
After noting that we are again ‘In Deep Ship’ last month, sadly the West’s Operation Prosperity Guardian has not returned the Red Sea and Suez Canal to normal conditions. Higher insurance costs and risks to staff are hence forcing ocean carriers to continue to avoid both (Figure 1).
Indeed, the regional situation remains delicate, with the risk of further military escalation.For now, naval escorts are the only way limited numbers of Western ships can utilize Suez, which is a high-cost exercise: the EU is readying a naval mission of three ships, dubbed Eunavfor Aspides, but this is unlikely to be a game changer given the small scale of this mission compared to the density of commercial shipping in the region. As such, it seems likely that many ships will continue to take the detour around the Cape of Good Hope.
Longer travel times, and arguably opportunism of shipping companies have pushed up freight rates. In this report we look at the potential consequences for inflation....
....MUCH MORE (14 page PDF)
HT Rabo's Michael Every via ZeroHedge
