IMF: Rising Shipping Costs Bring Price Hikes! The Global Logistics Giant Was Acquired At A Valuation of Up to $5.7 Billion...

The rise in shipping costs has brought price hikes!

IMF research confirms the correlation between "fluctuating" global shipping costs and inflation.

“Looking at data from 143 countries over the past 30 years, we find that shipping costs are an important driver of global inflation: when freight rates double, inflation rises by about 0.7 percentage points. Most importantly, the effect is fairly durable, reaching a year later peak, lasting up to 18 months. This means that the observed increase in transportation costs in 2021 could add about 1.5 percentage points to inflation in 2022," said the study's authors Yan Carriere-Swallow, Pragyan Deb, Davide Furceri, Daniel Jimenez and Jonathan D. Ostry blog at the IMF.

They point out that more than 80 percent of the world's traded goods are transported by sea in 40-foot equivalent units. As FreightWaves/American Shipper reports, the sharp rise in the cost of seaborne cargo has sparked a wave of speculation about the future of the global economy.

▲The Drewry World Container Index shows how shipping costs have changed over time

"At least for some importers, especially smaller importers paying spot rates, ocean freight costs are a major source of price increases," FreightWaves/American Shipper said in a late October article.

At the time, the spot rate per FEU on the Asia-American west coast trade lane was more than four times what it was in October 2020.

IMF researchers expect the situation will only get worse.

They said, “In the 18 months after March 2020, the cost of shipping containers on the world’s transoceanic trade lanes increased sevenfold, while the cost of shipping commodities soared even more. Our new research shows that, The inflationary impact of these higher costs is expected to continue through the end of the year."

They noted that the analysis was conducted before Russia's invasion of Ukraine. "Conflict could fuel global inflation."

The researchers explained in a blog post: "While the effects on inflation are smaller than those associated with fuel or food prices... transport costs are much more volatile. Therefore, the contribution of changes in global shipping prices to changes in inflation is measured in quantity. similar to changes in global oil and food price shocks.”

They said their analysis showed that "increased transport costs hit prices for imported goods at the terminal within two months and quickly passed through to producer prices - many of whom rely on imported inputs to make their goods."

"But the impact on the price consumers pay at the checkout gradually increases, peaking after 12 months," they wrote. "This is a much slower process than after the global oil price hike, and drivers In a few months, they will feel the rise in oil.”

The FreightWaves/American Shipper article in late October stated, “Inflation watchers will be watching ocean freight closely, if not as a price driver, as a bellwether for what happens next. Rising transpacific spot rates and Los Angeles /The number of ships near Long Beach does coincide with an increase in consumer price inflation. The same correlation is likely to continue to decline.”

"At some point, port congestion will go away," Stifel analyst Ben Nolan said in a note. "Right now, nothing is normal, and it doesn't appear to be normalizing, so 2022 still looks chaotic. Currency Swell here we come."

While the IMF researchers didn't address China's recent port closures in response to its coronavirus-proposed zero policy, they did note that "the war in Ukraine could lead to further disruptions to supply chains, which could lead to global shipping disruptions. Costs and their inflationary effects - the higher the longer."

The global logistics giant was acquired at a valuation of up to $5.7 billion
Hitachi Transport System (HTS), Hitachi Logistics, a global veteran logistics company with a history of 70 years.

According to the ocean freight rate data of Transport Intelligence, Hitachi Logistics HTS ranks among the top 20 global shipping service logistics companies with an annual freight volume of 400,000 TEU.

Recently, it was acquired by the US private equity giant KKR Group (Kohlberg Kravis Roberts)!

If successful, it would be the largest ever private equity transaction in transportation and logistics executed by a single financial sponsor.

Hitachi holds a 39.9% stake in Hitachi Logistics, and it was reported last week that the company is considering an acquisition by KKR. The company also said that it is indeed considering selling these shares, but both Hitachi and Hitachi Logistics said that the matter has not yet been established. Sure. Hitachi has been selling subsidiaries and affiliates in recent years to restructure its business mix.

A week later, KKR signed an agreement with Hitachi, the controlling shareholder of HTS, according to which "HTS will acquire a 39.91% stake in Hitachi by way of share repurchase following a share merger through a tender offer."

KKR's tender offer valued the entire share capital of the Tokyo-listed company at $5.7 billion, with KKR's bid of 8,913 yen ($67.7) per share.

Hitachi Logistics is the largest third-party logistics company in Japan, managing the shipping logistics business. Hitachi Logistics HTS' fiscal 2022 revenue is 740 billion yen ($5.6 billion), according to its consolidated financial forecast for the fiscal year ending March 31, 2022. Meanwhile, its adjusted operating income was estimated at 38 billion yen ($290 million), with a profit margin of just 5.1%.

“The views of Hitachi Logistics HTS shareholders on the offer, other than the parent company, are unclear,” the Financial Times reported on Thursday. The Times added: “People familiar with the matter said the deal means KKR will invest around $5.2 billion. , to acquire a 90% stake in Hitachi Logistics. Hitachi will reinvest in a buyout fund to hold the remaining 10% after the unit is delisted. "

The company's shares closed at 8,540 yen on Thursday, but the acquirer noted that the proposed takeover offer was 166.22% higher than Hitachi Logistics' average closing price for the 12 months ended June 16, 2021, and higher than Hitachi Logistics' 12-month average closing price as of June 2021. The 6-month average closing price on March 12 was 161.53% higher.

According to the ocean freight rate data of Transport Intelligence, Hitachi Logistics HTS ranks among the top 20 global shipping service logistics companies with an annual freight volume of 400,000 TEU.

Hitachi has been streamlining its business for a year, hoping to focus on digital products.

Hiro Hirano, Co-Head of KKR Asia Pacific and CEO of KKR Japan, said: "We look forward to leveraging KKR's global service network and expertise to accelerate the next phase of Hitachi Logistics' growth and help the company achieve its goal of becoming a company through technical support and a collaborative approach. The goal of Asia's leading third-party logistics company."