Logistics
While we spend a great deal of time on the design, production and sale of CE products, moving CE products from point A to point B has become an important factor in the cost of such products. In most situations CE products and components are shipped by maritime transport, which accounts for more than 90% of transnational trade, with land and air making up the difference, although by weight, air transport accounts for only 0.21%. While air transport is usually used for CE products when delivery schedules become critical because of the high cost, air transport accounts for ~26% of global trade value.
As can be seen in Figure 1, container rates have risen 55.9% y/y in April, despite a 16.5% drop since the end of 2021, and viewed against April 2020 those rates have increased by 437.2% y/y, and with 7 of the top 10 ports worldwide (End of 1H ’21) being in China and 9 of 10 in Asia, where much CE traffic is originated. After the onset of COVID-19 in 2020 set back shipping volumes, container shipping volumes rebounded last year despite the higher container rates, but the war in Ukraine and inflation have maintained unnatural shipping rates which continue to affect CE device pricing, at best offsetting any manufacturing efficiencies, and at worst contributing to continued overall CE product price increases.
We expect that shipping costs, along with rising silicon and overall component costs, will push CE device prices up by between 5% and 7% this year, even with the 16% reduction in average shipping rates, as many suppliers have been absorbing increased costs to keep product flow from stalling. With 2022 representing a year with more difficult y/y comparisons we expect suppliers will be under more pressure to recover lost margin, and will have little choice but to build in those costs. If the global economy slows enough in 2H, there is a chance that CE prices will stabilize in 2023, at least from a cost perspective, while demand is still a bit of a wildcard given the ‘global government’s’ push toward returning to a more normal lifestyle, despite COVID-19. From a CE perspective deflation never looked so good…
As can be seen in Figure 1, container rates have risen 55.9% y/y in April, despite a 16.5% drop since the end of 2021, and viewed against April 2020 those rates have increased by 437.2% y/y, and with 7 of the top 10 ports worldwide (End of 1H ’21) being in China and 9 of 10 in Asia, where much CE traffic is originated. After the onset of COVID-19 in 2020 set back shipping volumes, container shipping volumes rebounded last year despite the higher container rates, but the war in Ukraine and inflation have maintained unnatural shipping rates which continue to affect CE device pricing, at best offsetting any manufacturing efficiencies, and at worst contributing to continued overall CE product price increases.
We expect that shipping costs, along with rising silicon and overall component costs, will push CE device prices up by between 5% and 7% this year, even with the 16% reduction in average shipping rates, as many suppliers have been absorbing increased costs to keep product flow from stalling. With 2022 representing a year with more difficult y/y comparisons we expect suppliers will be under more pressure to recover lost margin, and will have little choice but to build in those costs. If the global economy slows enough in 2H, there is a chance that CE prices will stabilize in 2023, at least from a cost perspective, while demand is still a bit of a wildcard given the ‘global government’s’ push toward returning to a more normal lifestyle, despite COVID-19. From a CE perspective deflation never looked so good…
Global Container Freight Rate Index - Source: Statista
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