I promised a short thread on increasing freight costs and its impact on the poorest in our community. So, here goes. Any followers who work in trade should wade in if I get anything wrong. /1

Most consumer goods from outside of the EU arrive in the UK via container ship. TVs, trainers, clothes, etc etc etc. Trade between private companies is covered by a set of rules known as INCOterms which cover the obligations of buyers and sellers. /2

So, Company A (in the UK) buys products from Company B in, say, China. They agree which INCOterm (there are about 13) is going to cover the sale so both parties know their obligations and their risks. /3

A very common sale term for goods being carried by sea is CIF - cost, insurance & freight. So, the seller in China is responsible to get the product to a discharge port in the UK, to pay for the insurance of the goods to the discharge port and to meet the freight costs. /4

Obviously, the price the seller wants for the goods is going to be increased to cover the costs incurred by the seller for the insurance and the freight. It is a bit more complicated than this but this is enough for current purposes. /5

Over the last few months, the cost of shipping goods to the UK from all over the world has increased massively. Lots of reasons for that but, again, it is complicated and not something we need to discuss here. For once, this really isn't entirely Brexit related. /6

So, if the cost to Company A to buy the goods has a freight element and that freight element is now 10 times as much as it was 3 months ago, obviously the purchase price goes up to cover that increase. The seller is generally not going to want to absorb that increase. /7

Therefore, the UK buyer will end up paying more for the product and will pass that increase on to the consumers. At the higher end of the market, it doesn't make a huge difference. But, on cheap items with slim margins, the price increases will be more noticeable. /8

If you are counting every penny and your kettle stops working or your trainers fall apart, a small price increase on a replacement can make a tough life even tougher. And an
increase in the freight costs WILL be passed on. /9

This is a basic example but I hope it gives some context to why things like freight rates matter in the ultimate price we all pay when we buy consumer products.. If all the cheap clothes from China and India are suddenly much more expensive to import, we all pay for it. /10.

PS. All costs in trade are ultimately borne by the consumer. Customs clearances, freight, insurance, loading charges, inspections etc. Which is why putting a border between the UK and the EU is so bloody stupid. /ENDS