The UN Council for Trade and Development (UNCTAD) said the Ukraine war is likely to drive up consumer prices of computer, electronic and optical products by 11.4%, referring to the result of freight rate simulation on the possible impact of the Russia-Ukraine War.
The Ukraine war has lasted for more than three weeks, while it is still not clear how the war will affect the global supply chains overall, UNCTAD’s report entitled “The impact on trade and development of the war in Ukraine” simulated potential impacts and came up with estimated of price increase estimates.
The report said the war is complicating trade route uncertainties by having a negative impact on global air freight capacity. Air cargo prices are also rising as carriers are forced to take longer routes and spend more money on fuel. While Russian airspace is closed to 36 countries and vice versa, some freight forwarders currently recommend not booking overland shipments between Asia and Europe.
The report said that 1.5 million ocean containers of cargo were shipped by rail from China to Europe, but that route was disrupted by war now. If that volume is to be added to the Asia-Europe Ocean freight, that would drive up the demand by 5-8%. Having said that, the maritime trade is already very expensive and overstretched, and people will find it difficult to replace these suddenly unviable land and air routes.
“The increases in freight rates can have significant impacts on the economy,” said the UNCTAD report, referring to computer simulation results that top 10 products to see prices escalate due to freight rate increase are: computer, electronic and optical products (11.4%), furniture and other manufacturing (10.2%), textiles, wearing apparel and leather products (10.2%), rubber and plastic products (9.4%), basic pharmaceutical preparations (7.5%), electrical equipment (7.5%), other transport equipment (7.2%), motor vehicles, trailers and semi-trailers (6.9%), fabricated metal products, except machinery and equipment (6.8%), and machinery and equipment, not elsewhere classified (6.4%).
The report painted a gloomy picture: “The results confirm a rapidly worsening outlook for the world economy, underpinned by rising food, fuel and fertilizer prices, heightened financial volatility, sustainable development divestment, complex global supply chain reconfigurations and mounting trade costs.”
And since money has been flowing out of emerging countries to safe havens, the fall in those emerging market currencies would add oil to the flame of inflation by increasing the cost of imported food and fuel. Small island developing states are likely to see consumer prices increase by 7.5%, compared to the 1.5% of the world average and 0.6% of landlocked developing countries, according to UNCTAD.