The impact of rising shipping costs is not uniform among countries where structural characteristics play an important role. It means that countries with a greater degree of imports and those depending more on transportation such as island countries might experience a higher rate of inflation.
In Indonesia, the increase in logistic costs has been transmitted to overall headline inflation (Consumer Price Index) through import prices such as commodities. Another issue is that domestic fleets shift to the international route leaving the domestic trade left out with fewer fleets that vault up the cost of domestic costs.
Leading the presidency of G20 countries in 2022, Indonesia realizes that the disruption in the global supply chain can hinder the realization of a strong and inclusive recovery and hamper productivity. This problem needs a global agreement on the strengthening of logistics infrastructure that allows sufficient capacity and distribution of logistics infrastructure.
For the G20 countries, there are two possible solutions to overcome the bottleneck. First, the skyrocketing freight rates happen because the global merchant containerized cargo is falling under an Oligopoly market structure. The value of the Gini ratio hikes up to 0.7607 in the 2000s vs. 0.5767 in the 1990s.
Consequently, we might witness that the existing incumbent forms alliances that have a strong market power to set and determine the global freight rates, especially by implementing the blank sailing program by reducing the number of operating vessels during the pandemic.
The tit-for-tat strategy has led to an increase in freight rates on major routes globally. For this reason, a price cap might be seen as an appropriate strategy to prevent further pressure on the transportation cost that potentially drives cost-push inflation.
By implementing this proposal, many countries would benefit from solid guidance and certainties for both exporters and importers in estimating their freight costs. Furthermore, we expect more price stability by avoiding unnecessarily price fluctuation due to logistic costs.
The G20 member economies could facilitate the dialogue between the relevant government authorities or agencies and the Main Line Operators (MLOs) in designing and setting these price caps.
On the structural problems, the emerging economies usually have limited power on controlling the exportation of goods and services to the global market. Due to its limited capacity, shipping operators in the emerging economies might have the ability to transport goods from each country towards regional hubs before the cargo is offloaded on the mother vessels onto the destination across the globe.