Israel Bluff: The prices of transportation and raw materials are falling, just not in Israel - voila! Of money

2022-09-23T04:51:17.440Z

Sea freight prices, which were a perfect excuse for the increase in imported goods to Israel, have dropped by dozens of percent. The prices of raw materials for construction are also decreasing. Did you feel any of this in your pocket? violinist

Israel Bluff: The prices of transportation and raw materials are falling, just not in Israel

Sea freight prices, which were a perfect excuse for the increase in the prices of goods imported to Israel, have dropped by dozens of percent.

The prices of raw materials for construction are also decreasing.

Did you feel any of this in your pocket?

Probably not, because Israel has its own laws

Shlomo Ma'oz

09/22/2022

Thursday, September 22, 2022, 10:48 am Updated: Friday, September 23, 2022, 7:43 am

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The prices of marine transportation and raw materials were the main reasons for the price increases.

Why don't we enjoy the discounts when they go down? (Photo: ShutterStock)

Sea freight prices by Chinese shipping companies have decreased since the beginning of the year by 60% (in words: sixty percent!) According to estimates in China, the Chinese shipping companies will feel the continued decrease in the freight rates they charge their customers.

What happened? Simply the traffic jam that was created immediately After the Corona epidemic, when suddenly global demand rose, soared and caused a tremendous jump in global transportation prices, while the world's industries, service companies and shipping companies were not ready for the release of demand from the depressing virus, it was released.

The result, a sharp increase in the rate of inflation in the world due to the burden of transportation prices on importers And what about the domestic consumer After the drop in sea transportation prices, the Chinese charge an average of $4,800 for a 40-foot container.

Please note, at the beginning of the liberation from the corona virus, the prices of marine transport were five times what they were before the outbreak of the virus, now it is time for prices to drop after shipping companies have ordered more and more ships and containers in order to enjoy the high transport prices.

The sea is the same sea, but the sea freight prices have long been different (Photo: ShutterStock)

Container Festival

Now, in September, a new phenomenon was discovered: shippers of goods around the world are demanding that the shipping companies open the long-term contracts they signed at record prices, they simply cannot pay such high sea freight prices while SPOT freight prices, floating, have dropped significantly.

Some shipping companies are canceling lines in October to reduce supply and prevent too sharp a drop in shipping rates.

Note that Shanghai is the largest container port in the world.

Now that the authorities have lifted the restrictions in the Shanghai district, or rather the blockade, the importers are in a hurry to make optimal use of the port and clear containers within four and a half days instead of 12 working days during the blockade.

This change also increases the supply and reduces the prices of sea transportation.

Another reason for the decrease in sea freight rates is the decrease in China's trade volume, due to the slowdown in the rate of economic growth in China.

The reasons for the slowdown: a decrease in economic activity in the world due to the Russian invasion of Ukraine, the increase in energy prices and a sharp jump (which has not yet stopped) in interest rates in the world.

Chinese exports in August were only 7.1% higher compared to August last year, after an 18% jump in July compared to July last year.

Chinese imports rose by only 0.3% in August compared to August last year, after a 2.3% increase in July compared to July last year.

World trade is simply in decline, the supply of ships is high, the result is a drop in sea freight prices.

Freight prices from Asia to the US West Coast have been $3,900/FEU, forty-foot container in recent days, down 80% compared to 12 months earlier. YTD down 75%, lowest since May 2020. Freight prices to the US East Coast "B decreased by 61% to 8,550 dollars / FEU, since the beginning of the year a decrease of 50%, to prices at the level of May 2021.

According to estimates in the marine transportation industry, marine transportation rates in the last quarter of the year will still be 12% higher than in 2019, before the corona virus, but since the beginning of September, marine transportation prices between Europe and the USA have dropped by 20%.

Naturally, the profits of shipping companies decline after two years of bonanza.

The world's largest Danish shipping company, abbreviated Maersk, earned $8.6 billion in the second quarter of the year, more than the annual profit before the outbreak of the corona virus.

The question is, will the shipping companies enter into a price war or will they try to keep the freight rates as they are today?

Some companies began to change merchant shipping routes to find more profitable routes, such as the transatlantic line.

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A price drop of dozens of percent in container transportation rates.

Have any of you heard of a planned discount following the decline? (Photo: ShutterStock)

Time for discounts

Why are freight rates interesting to us?

Israeli industries and importers erupted in jubilation with price increases at the beginning of the year, claiming that the cost of transportation had skyrocketed, this in addition to the increase in the costs of raw materials in Israel and abroad - and therefore there was no choice but to burden the consumers with more and more increases. For some reason these claims faded in recent weeks, when The companies are quietly raising prices without the claim of transportation.

Let's check the shipping prices in containers from China and Southeast Asia to Israel.

In July, imports from China and other Asian countries were 22% of all imports of goods to Israel, of which 8% came from China. Please note that since the beginning of June, shipping prices from Southeast Asia To the Mediterranean basin where you live, they decreased by 36%! Did you enjoy this decrease in the cost of transportation? Did the government officials responsible for your welfare notice, did the competition authority issue a document on the issue?

The prices of agricultural goods are also generally decreasing, the price of wheat from which flour is made from which dough pulp is made from which bread is made has decreased by 21% since the beginning of June, the price of soybeans has decreased by 14%, the price of corn has decreased by 10%, the price of coffee has decreased by 8.5%, the price of cocoa fell by 6.5% and the price of sugar fell by almost 10%.

The wholesalers will come and say that there is also bulk transport that does not use containers, right, the prices of bulk transport today, worldwide, according to the Baltic Sea Index, a determining and main index that everyone follows, have decreased since the beginning of July by 31%! The

bulk index is mainly important for prices The raw materials are naturally not usually transported via containers. This is where raw materials from the construction industry come into play. Most of those who bought houses on paper are obliged to link to the index of prices of inputs for residential construction.

Since the beginning of June, the price of wood for construction has dropped by 26%, the price of copper has dropped by 195%, the price of clay, the aluminum used in construction, has dropped by 18%, the price of tin has dropped by 39%, the price of steel has dropped by 12%, the price of Iron fell by 27%, the price of lead fell by 14%, the price of nickel fell by 15%, the price of bitumen in China fell by 12% and the price of rubber fell by 47%.

You should have felt it in the construction input index.

Indeed, a small part was transferred to the residential construction price index.

The residential construction inputs index rose in August by only 0.1%.

In the last 12 months leading up to August, the index rose by 6.3% after 6.8% in July respectively, meaning a slowdown in the rate of increase.

The index, excluding wages, also increased by 0.1%.

In the month of August, there were increases in the prices of inputs for residential construction mainly at local manufacturers and suppliers who continue to raise prices, an increase in the price of cement by 3.2%, mortar by 2.2%, gravel by 1.8%, blocks by 1%.

In other words: there is not enough competition in the local market, but when you look at the components of the residential construction price index for the month of August, which are affected by imports and the prices of construction goods in the world and the prices of marine transportation, there is actually a decrease in prices.

The price of iron for construction fell by 4% in August due to the drop in iron prices in the world, wood for construction decreased by 2.9%, in conductors there is a decrease of 2.6% and in iron chains - a decrease of 1.7%.

That is, when there is competition, in this case abroad, there is a drop in prices that represent the ability of the manufacturer and the importer to present a more reasonable price.

A decrease in input prices was also found in the construction index for commerce and offices in August.

In August the index decreased by 0.3%, an increase of 7% in the 12 months preceding August, after an increase of 8.1% in the 12 months preceding July.

In the input price index for building bridges and paving there was a decrease of 7.9% in 12 months - after an increase of 9.3% in the 12 months preceding July.

Under the influence of the drop in global prices, the prices of steel bars and nets fell by 3.8% in the bridge index, the prices of ground armor sheets and road lighting accessories fell by 2.7%, and the prices of water pipes fell by 1.5%.

In contrast, inputs from local production increased: black cement, paving stones and imported concrete, apparently the competition in these areas is poor.

The price of most of the raw materials imported for construction are decreasing.

As for those that are produced in Israel - apparently there is no competition (Photo: ShutterStock)

The interest is rising

If sea freight prices and falling commodity prices don't help, the tool of interest is added.

In order to help suppress inflation and house prices that are out of control, the Bank of Israel raises and raises the interest rate like most central banks in the world.

The interest rate of the central bank is currently 2%, it will rise on October 2nd by another 0.75% to 2.75%, also following the increase in interest rates this week, by the Fed in the USA. An increase in interest rates depresses the prices of apartments and houses, this has always been the case all over the world Our expectation is that the Bank of Israel will continue to raise the interest rate more and more and it is certainly possible that in a year the interest rate will already soar to 5%, mainly due to the interest rate increases by the Americans, so that the prime interest rate will be around 6.5% in a year.

The interest rates that have already risen in the US have led to a slowdown in the rate of increase in house and apartment prices in the US and most of the world.

Already in the second quarter of the year, house prices began to fall in many countries around the world.

In real terms, meaning the price minus inflation, in the second quarter of the year there were decreases in the prices of houses and apartments in 24 countries and increases in 34 countries out of 58 countries that regularly publish a series of housing price data.

In Europe, out of 27 countries in the European Union, there is still an increase in apartment prices at a real rate in only 7 countries.

In the UK, Germany and Spain, prices are falling.

In Asia, only three countries out of 14 countries still have an increase in apartment prices in real terms.

The place where the real estate bubble burst is Canada. In just one month, August, house prices in Canada fell by 1.6%. Since the month of February, house and apartment prices in Canada have fallen by 7.4% against the background of continued interest rate hikes by the Central Bank of Canada and expectations For an economic slowdown already in the fall/winter of the battles that will attack most of the world.

The interest rate increases in Canada are the most aggressive in the history of the Central Bank of Canada, since March of this year the interest rate increased from 0.25% to 3.25%.

The formula is simple: when interest rates are raised, it is also clear to mortgage holders that the prices of houses and apartments fall.

The number of transactions for the sale and purchase of apartments decreased in Canada by a quarter.

The variable interest rate for mortgages rose to 5% on average. With such an interest rate, the viability of investing in houses and apartments decreases. There are areas where apartment prices fell in August by 5-6%. In Ontario, prices fell in August by 5.3%, in Greater Toronto by 1.9 % and in Montreal by 1%.

The value of residential real estate assets decreased in the second quarter of the year by 419 billion Canadian dollars, but the value is still 2.3 trillion domestic dollars higher than the period before the corona virus. It is estimated that from the peak of February until the middle of next year, prices have decreased by a fifth of their value.

On the other hand of the Pacific Ocean, in Australia apartment prices fell by 2% in July compared to the peak of April this year, also against the background of interest rate increases of 1.75% since May of this year, and further increases are expected. In the second quarter of the year, apartment prices decreased by 2%. Still , the prices in the second quarter of the year were 12% higher than they were a year earlier.

It is estimated that apartment prices have fallen by 18% from the current level.

It is interesting to note that the main damage to prices is in apartments and not residential houses, the reason is that the prices of apartments have increased at a sharp rate relative to the average salary compared to the prices of houses.

House prices are expected to decrease this year by 6.5%.

It is estimated that house prices will fall in Sydney, Australia's central business city, by 7%-10% this year, and another 7% fall is predicted next year, according to banks and a large apartment agency. In order for the houses to be affordable, their price must fall between 7 %-10%.

In San Jose, California, USA, the global high-tech city, house prices are very expensive.

Within two months of June this year, prices fell by 5.1%.

Prices in San Jose are still high compared to a year ago.

San Jose leads the decline in housing prices in the US, it is expensive and the fear of a hi-tech crisis against the backdrop of the stock market crash is driving away a population whose livelihood has been damaged.

In San Francisco there was a decrease of 2%, in Los Angeles a decrease of 1.3%, in Sacramento a decrease of 1.1%.

At the same time in Britain, the kingdom of Charles III, house prices fell in August by 1.3% after increases of 0.7% in the two months June-July.

They are still 8.2% higher than in August last year.

In Sweden, house prices fell by 2.9% in one month, July.

The decline in real estate prices that has already begun in the world has not yet reached Israel, but the interest rate will take its toll (Photo: Reuven Castro)

only in Israel

The apartment price index in Israel increased in the pair of months June-July compared to May/June by 1.3% after an increase of 2% in May.

In the last year, apartment prices increased by 17.9%.

Apartment prices have increased in the last two years by 27.2%.

In the last three years, apartment prices have increased by 31.1%, compared to 5.2% in the previous three years.

There is a clear lawlessness here, due to the government's lack of hand to waste the nation's land and does not designate land on a point-by-point basis for those in need of a roof over their heads.

In the last decade, apartment prices increased by 83% after an increase of 49% in the previous decade.

Israel is among the few countries whose apartment prices continue to rise in both nominal and real terms.

But never resilience, not in the area of apartments and not in the area of private consumption prices for households.

The interest will hurt, but the job will be done well, there is no stable government to steer.

Of money