The prices of several goods from local retailers have increased sharply since 2019 but have not yet dropped again despite reports of declines in international shipping costs, an analysis by Times of Malta has shown.
This comes in the wake of Prime Minister Robert Abela’s appeal to businesses not to take advantage of the global economic situation to artificially inflate prices.
Abela claimed that although the cost of shipping has generally decreased, this has not been followed by a similar decline in the cost of consumer goods.
Several daily goods, including groceries, laundry detergents and baby products have increased in price since the onset of the pandemic, with the price of some staple foods such as flour and butter increasing by over 60 per cent, causing an additional burden on consumers as they try to keep up with the cost of living.
This is also true of appliances and electronic items, several of which have also risen in price in 2019 or 2021 and not decreased since.
First, have shipping costs really fallen?
An analysis of several freight indices suggests that this is broadly the case.
The Drewry World Container Index, which collects weekly data on container freight rates, shows that shipping costs all around the world increased dramatically in the spring of 2020, peaking in the summer and autumn of 2021. But they have been steadily decreasing over the past year and are currently approaching early-2020 levels.
This is confirmed by other similar indices, such as the Freightos Baltic Index, which utilises business data to develop live aggregate data on freight costs.
Shipping costs from China have followed a similar trend, with the China Containerized Freight Index indicating that shipping costs from several Chinese ports are similar to what they were before the pandemic.
The cost of air freight also appears to be on the decrease, with DHL reporting in December 2022 that “globally rates are below their level against last year despite effects of higher fuel prices”.
The current cost of road freight in Europe, on the other hand, is less clear. Industry experts have reported that costs hit record highs in early 2022 and are likely to continue increasing, with factors such as driver shortages and fuel costs driving these increases.
In December, the Association of Tractor and Trailer Associations claimed that in spite of decreasing global shipping rates, ferry lines that carry cargo to Malta increased their rates in 2022.
What is causing prices to rise?
Speaking to Times of Malta, the Malta Chamber of Commerce explained that when shipping costs from Asia increased during the pandemic, several importers tried to source alternatives from European distributors, often importing in smaller quantities and at higher per-unit costs than was the case when importing from Asia prior to the pandemic.
Highlighting the subsequent increase in transport costs from Europe, the Chamber said: “With these developments in transport costs, some importers started shifting back to importing directly from Asia. But container costs from Asia are still not what they used to be and prices of goods in Asia are also rising in response to market shortages of basic materials. Also, transport costs from Europe are still at the highest they've ever been, and a lot of foodstuffs - which are typically high-volume, low-value items - come from Europe.
“Food prices were also heavily impacted by the war in Ukraine because of a shortages of grains and sunflower oil, and these are a basic ingredient of many foodstuffs. Building materials, such as aluminium and tiles, were also heavily impacted”.
National data shows that housing and food were the sectors most heavily impacted by inflation in 2022, with increases of 19% and 12.5% respectively over the previous year. Recent Eurostat data lists Malta’s inflation rate as of December 2022 at 7.3%, 3% lower than the EU average of 10.4%.
Contacted for comment, Express Trailers also pointed to an "unprecedented" increase in the cost of sea freight from the Far East as a key reason behind price hikes over the past years. A spokesperson observed that recent decreases in the cost of sea freight are offset by Malta's dependency on road freight and ferries to connect us to mainland Europe.
"To add to the woes, ferries operating to Malta have increased their tariffs over the last 2 years and have not reduced any freight cost. They do not have proper visible transparent pricing where bunker fuel is concerned and competition is not enough of a factor to have any effect. The cost of transport is still increasing in Europe due to the current inflation effects. This is directly hitting road prices as the operators work within Europe to arrive in Malta."
Express Trailers also highlighted Malta's disadvantaged position in relation to other Mediterranean islands such as Sicily, Sardinia, Corsica and Crete, noting that "international road transport to Malta is not a subsidized service and does not qualify for EU or local funds", unlike other islands which benefit from EU regional funds.
What do economists say?
Several economists contacted by Times of Malta highlighted the concept of ‘price stickiness’, or the fact that when prices increase due to increases in the cost of external factors (such as transportation or production), they often ‘stick’ and are slow to decrease once the cost of external factors has reverted to its original state.
They also pointed to the lack of competition across many sectors in Malta as a key factor driving prices up. This lack of competition, they argued, is caused both by Malta’s natural geographic barriers as an island, but also by social and cultural factors, such as the close personal relationships between business owners.
In comments to Times of Malta, economist Lino Briguglio said: “In smaller countries such as Malta there is a high potential for businesses to develop a dominant position in the market whereby they can disproportionately influence pricing. There is also a higher risk of businesses within a sector reaching tacit agreements to set pricing to their advantage”.
“In order to prevent these situations, regulatory oversight needs to be fast and effective”, he said.
“Unfortunately, this oversight would seem to have become slower and overly bureaucratic in Malta, following legislative changes in 2011 and 2021 which replaced the Commission for Fair Trading with other forms of judicial oversight.
"As a result, the enforcement of competition law has become less efficient and more burdensome”.