Tuesday 31 January 2023

Global container crisis raises Costa Rica import prices up to 10 times

Experts forecast a rise in prices and a probable shortage by the end of the year and that the cost of freight has not yet reached its highest peak.

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31 January 2023 - At The Banks - BCCR

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QCOSTARICA – The so-called container crisis is one of the collateral damage that the pandemic has left in the world. Since March 2020, people were forced into confinement and this brought with it a halt in international trade.

Some 90% of the world’s goods are transported by sea, which makes the current shortage a real problem

“International logistics used to work like a Swiss watch. This allowed containers to be at the right time, in the right place, and when people needed them. But with the pandemic there were closures on both land and sea borders. Many companies closed abroad because they had internal cases or because they protected themselves,” explains Jairo Mena, member of the Economic Department of the Costa Rican Chamber of Commerce.

This caused the flow of containers to be interrupted and they were stuck in some part of the world that was not where they should be.

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Many empty containers are stuck in docks all over the world.

“This limitation of the number of containers in places where they were needed, began a fight among exporters. And by fighting I mean seeing who paid more for the container to transport their product. So this is a matter of supply and demand, which began to increase the price of freight and this price, yes, it has increased a lot,” says Mena.

This work system especially complicates small businesses, which often do not have enough cash flow to disburse the new freight costs all at once. Small importers from China, for example, are hardest hit.

“At the beginning, we paid about US$1,500 dollars for a small 20-foot container. The last one we ordered came out at US$11,500, which is almost 10 times the previous price. Right now for December the price is around US$14,500 dollars and this is something that at the moment we cannot afford, we do not have that flow of money,” Jimena Chacón, owner of a business that brings pet products from China, told AmeliaRueda.com.

In their company, they have decided to take absorb this extra cost and try not to raise the prices of their products, but they estimate that by the end of the year they will have to make a minimum increase in prices so that the business continues to be viable.

“I monitor products similar to ours in other stores. And for example, in one of the shops, a dog blanket that used to cost ¢11,000 colones is now ¢15,000 colones. And this is a large company, the increase in prices will be inevitable,” Chacón told Amelia Rueda in a recent radio program interview.

The global shortage of shipping containers, primarily caused by the Covid-19 pandemic, has led to drastic inflation in shipping and container prices and increased delay times for companies
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For the December merchandise, they made the decision not to bring a container but to bring boxes of very specific and necessary products. In the long run, it may be a more expensive measure, but for now, it is the way you can adjust to your cash flow.

“These measures of pulling inventory and internalizing costs are not sustainable in the long term. If the price trend still continues to rise or remains even at these levels that we have right now, then there will be no other option but to pass this on to the final consumer,” Jimena explained.

The high demand for products caused a barrage of ships with merchandise in the United States.

According to the Observatory of Economic Complexity (OEC), for 2019 Costa Rica imported about US$14.7 million, which makes the country the 87th importer in the world. The main origins of these imports are the United States (40.9%) and China (12.7%).

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“This is a problem that not only happens to Costa Rica, but it is also happening in the whole world because Asia produces more than 20% of everything that is consumed worldwide. The companies that depend on the East know that there are no similar costs nearby, it is very difficult to find similar costs for footwear and clothing around here,” explains the owner of Ekono Shops, Allan Cedeño.

“It is a more complex problem than seeing only freight, it is a supply problem, closed factories, a problem of contagion in docks, an exchange rate problem,” added Cedeño.

At the Ekono Stores they have adapted and have made the decision to, momentarily, stop bringing certain products. Like those with very large volumes but very low prices, which with this crisis become unprofitable for both the seller and the consumer.

“All importers have had to juggle to have their merchandise on time. And obviously, there is no other way, the products are going to go up in price, in some categories less in some more categories, but there will be an increase, that’s for sure,” added Cedeño.

Although Costa Rica has not yet been affected by the shortage of products, everyone agrees that during the Christmas season this impact could begin to be seen. Therefore, it recommends consumers to make their purchases in time for the season.

The Ministry of Economy, Industry and Commerce (MEIC) assures that the world situation is complex and that Costa Rica cannot escape from it as it is a country with an important import component within its production processes.

According to the MEIC, many importers are already taking planned measures to request orders in advance of their reorder points, in order to anticipate delays. The ministry says it is monitoring that the prices of the products do not reflect abusive effects that take advantage of these conditions.

According to Insider, the supply chain crisis could last into 2023

Possible solutions

Despite the fact that this is an effect of world trade, the Costa Rican Chamber of Commerce has made two proposals to the Government to help lower these new costs so that it is not the consumer who ends up paying them.

“We made these proposals to both the Ministry of Finance and the Presidency (Central Government), we still do not have an answer but we hope that at some point they will listen to us,” explained Jairo Mena, from the Chamber of Commerce.

“The first tries to technically eliminate the value of the freight and leave only the part of the value of the merchandise and these would be the taxes that would be paid, which would generate quite significant savings for importers.

“The second is that instead of eliminating the cost of that freight, it is that the prepandemic costs are taken into account and on that basis make the calculation of taxes. That it becomes a more attractive proposition for the Treasury, since it is a win-win. Because it would be perceived almost the same as before the pandemic and importers would have significant savings and the consumer would benefit,” Mena explained.

Although this is collateral damage caused by the pandemic, it is still unknown how long this situation will or can continue. Even many specialists assure that the cost of freight has not yet reached its highest peak.

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"Rico" is the crazy mind behind the Q media websites, a series of online magazines where everything is Q! In these times of new normal, stay at home. Stay safe. Stay healthy.

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