After being hit adversely by shutdowns of major global ports and airports due to the COVID-19 outbreak, the world’s major economies are once again opening up and witnessing a strong recovery. Global trade is slowly clawing back to pre-pandemic levels, thanks to the phenomenal surge in the demand for certain goods and services.
The Value of Global Trade
As per the United Nations Conference on Trade and Development (UNCTAD), the value of global trade reached a record level of $28.5 trillion in 2021, a 25% increase over 2020 and a 13% increase over 2019, before the COVID-19 pandemic struck. Trade in goods increased by almost $200 billion in the fourth quarter, achieving a new record of $5.8trillion. Meanwhile, trade in services rose by $50 billion to reach $1.6 trillion, just above pre-pandemic levels.
The Rise in Orders
The spike in global orders, especially in the manufacturing sector that saw transaction volumes grow by 25.6% in the first quarter, has put a considerable strain on existing supply chains to meet the burgeoning demand. While suppliers are under pressure to increase the pace of fulfilling orders, their cash position has weakened due to delayed payments. According to a recently-released report by third-party logistics research organization Armstrong & Associates (A&A), logistics companies across the USare under pressure as they need 40 to 50 warehouse nodes in their networks for next-day delivery and 80 to 100 locations for same-day delivery. Last-mile shipping now contributes 30 to 40%of the overall cost of transportation.
The sudden spike in the volume of export and import has led to disruption in global supply chains as labor shortage, container misplacement and congestion, and difficulties in the logistics and transportation sector have come to the fore. As a result, shipping costs, especially from the main Asian ports to the US and Europe, have skyrocketed since 2020 and significantly lengthened delivery times.
A Ripple Effect Awaited?
Any disruption in logistics has a ripple effect across global supply chains, causing goods to pile up in storage, affecting ships on their way to ports through diversion, or slowing them down as they arrive at major transit hubs, thereby restricting global trade flows. Depending on the COVID-19 situation globally and restrictions on the movement of goods and services, supply chain disruptions are expected to gradually improve in the second half of 2022. New tariffs will cause further disruptions in production and shipping, acting as a drag on activity while pushing up prices.
Higher shipping costs and goods shortages are expected to boost merchandise prices. UNCTAD projects that if freight rates remain elevated through 2023, global import price levels and consumer price levels could rise by 10.6% and 1.5%, respectively. This impact would be disproportionately larger for small, developing islands which heavily rely on imports that arrive by sea.
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