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Speaker 1: The old shipping cost issues. Back costs here on our

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Speaker 1: triple what they were at the end of last year.

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Speaker 1: The trouble with that is, of course it's all inflationary.

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Speaker 1: We've got a bit of a problem with inflation at

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Speaker 1: the moment. Mark Smith is the ASB senior economists back

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Speaker 1: with us. Mark, very good morning to you. Good morning

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Speaker 1: make where's the spike come from? Is this just all

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Speaker 1: red sea stuff or more than that?

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Speaker 2: Yeah, that's probably a large part. Also, things like the

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Speaker 2: pend On Mark Canal. There are some disruptions there. The

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Speaker 2: water levels are quite low and that's disrupting shipping. This

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Speaker 2: concerns about strikes in the US. And the other thing

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Speaker 2: also is that with COVID, people are caught out with

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Speaker 2: not having enough stock to move when demand picked up,

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Speaker 2: and that's a concern there. So there's a lot more

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Speaker 2: for cauternary stock building as well, and that's adding to

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Speaker 2: demand and adding to the impact on prices.

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Speaker 1: So is this temporary? I mean, if the strikes don't happen,

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Speaker 1: for example, of once you get stocked up and you know,

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Speaker 1: the water eventually fills back into the Panama, does that

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Speaker 1: solve all of these issues?

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Speaker 2: Yeah? I hope it is. This has been very quickly,

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Speaker 2: very quick up. So the hope is that app all

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Speaker 2: sort of suicide in time. Really what really matters there

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Speaker 2: errors and how long the impasists for its stalled early days.

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Speaker 1: Okay, it's not as bad a couple of things to

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Speaker 1: point out. It's not as bad as twenty one at

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Speaker 1: the peak of the peak. And two I'm assuming it's

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Speaker 1: offset to some degree by the fact we're not as

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Speaker 1: importing as much because we're all going backwards in the economy.

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Speaker 2: Ah yeah, but that's exactly it. In terms of the impact.

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Speaker 2: The increases have been size of all, but they're still

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Speaker 2: below where they're word pre COVID. This is only one

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Speaker 2: form of shipping costs. Others have not picked up as much,

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Speaker 2: and as you point out, New Zealand is a consumer

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Speaker 2: demand is quite a lot weaker than I was around

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Speaker 2: COVID times. And as well as that, New Zealand retailers

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Speaker 2: have added only quality of stocks on hand, so we're

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Speaker 2: unlikely to see the impact of the tumor place. It's

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Speaker 2: just here.

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Speaker 1: So where do we get on? The cost gone up?

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Speaker 1: So I need to pass it on, But then I

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Speaker 1: can't pass it on because no one can afford it.

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Speaker 1: Where where are we at with that argument?

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Speaker 2: Yeah, we're in a very very unfor the juncture. At

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Speaker 2: the moment. Corporate profitability as a share of income as

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Speaker 2: the lowest it's been for the last twenty five years

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Speaker 2: or so, so there's some real pressure on margins, particularly

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Speaker 2: for retailers as well. So there's probably three options that

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Speaker 2: they can really do. One is to increase prices, well,

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Speaker 2: good luck on that. Two is to try and ichieve

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Speaker 2: higher proactivity. Again, that's much easier said and done. And

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Speaker 2: FOD is ready to cut costs and that's really where

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Speaker 2: the focus will be for a lot of firms. Unfortunately,

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Speaker 2: that will be investment being cut as well as some

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Speaker 2: jobs as well.

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Speaker 1: Does it settle for the rest of the year or

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Speaker 1: not all We don't know.

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Speaker 2: Again, it's one of the unknowns. The hope is that

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Speaker 2: New Zealand inflation will fall below three percent by the

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Speaker 2: end of the year. Now, the longer these be shipping

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Speaker 2: costs remain higher, the less the chance that is that

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Speaker 2: that will happen.

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Speaker 1: YEA, all right, Mike, you go well and have a

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Speaker 1: good day. I appreciate it very much. Mike Smith, ASP senior

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Speaker 1: economists with US for more from Used Talks a B.

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