The invasion of Russia into the Ukraine has pushed the eurozone into a new economic reality. We are experiencing serious threats to the recovery of the post-pandemic. In recent days, here in Austria and Germany, milk has gone up nearly 20% in price, butter 33%, some breads 20%+ and there seems to be no limit on the increasing fuel, electricity and housing prices. With the consumer seeing 20-35% increases the EU talks of having only an annual 7.5% increase. Other EU countries are registering much higher inflation such as: the Netherlands (11.9%), Latvia (11.2%) and Lithuania. We are still in the second quarter of the year.
What will be the numbers toward the end of this year?
Energy & Inflation
But prices were already rising before the war and it will hit the developing countries the hardest. Experts fear that many millions more will be driven into poverty and that it will greatly affect transport and food networks. With reduced aid funding the humanitarian efforts for refugees and peoples already facing hunger will be even more difficult with the increase on food prices. In the Sudan petrol prices are up 63%, in Sierra Leone 50%, in Ghana 42% compared to Austria 32% and Germany’s nearly 35% or more.
In the UK energy price cap increased by 12% in October and is due to increase by 54% by mid 2022. Wages and pensions are not keeping up with the increase of prices on food and energy.
The ongoing results of the pandemic and the Ukraine war mean that the major international trading ports around the world are currently unable to process the transfer of goods as desired. AGCS and others assume that the problems in these ports cannot be solved quickly.
Even in the world’s largest port of Shanghai alone, it would take months to return to normal operations after the lockdown, which is still ongoing. Shipping is currently experiencing an unprecedented port congestion due to the large delays in many industries in the delivery of raw materials and supplier parts at the beginning of the corona pandemic two years ago.
“You have to build a lot more containers that can then be put into circulation.”
– Anastasios Leonburg
The industrial insurer AGCS, which belongs to Allianz believes that freight capacities in merchant shipping are too tight overall. For this reason international shipping companies have ordered 7.5 million new containers.
Manufacturing is feeling the squeeze. Factories have not only dealt with supply chain issues since COVID but are now under even more pressure with the high increase of energy prices since the beginning of the Ukraine war.
For Ireland manufacturing is a necessity. Even with the pandemic and Brexit, manufacturers in Ireland have been and remained part of the global supply chain. With businesses spending over €3 billion annually on gas and electricity for manufacturing and another billion on transport. With the increase in energy costs, as mentioned above, the pricing of manufacturing of products, parts and foods will be strongly felt by the consumer.
With the rise of energy prices and the further disruptions of supply chains there will be an overwhelming increase of transport prices and logistic costs. Shippers are experiencing a crisis. Until recently, transport has been relatively inexpensive. The inflation of transport price has now affected container shipping, air freight and now throughout Europe the road transport. In maritime container transport the last 3 years freight prices have risen to nearly four times as high for a 40 foot container between Asia and Europe. Air transport has more than doubled in the last years.
Manufacturing has been hit hard with inflation due to the supply chain disruptions in the last year and intensified this year through the was in the Ukraine. The cost of labor increases with the difficulty of keeping fully staffed floors in the factories. To top all this the oil and gas prices added to all the disruptions of the stricken supply chains.
How will manufacturers survive? Will the products they produce still be desired or needed with the increased prices? Will only the large survive? Manufacturers around the world are working on their supply chain, at a good price in these times and will hopefully be more resilient in the future to insure survival.