SUPPLY chain woes stoking higher shipping costs and fuelling heightened inflation across the world present opportunities for Jamaican manufacturers eyeing the US market.
John Mahfood, president of the Jamaica Manufacturers and Exporters Association (JMEA) – an industry lobby group – told the economic and production committee of Parliament on Wednesday that the opportunities abound because while freight costs to Jamaica from China are high, they are even higher for shipping from China to parts of the US.
In his presentation to the committee, Mahfood highlighted that the cost to ship a 20-foot container from China to Jamaica is now at US$14,000. The same container shipped to the US East Coast he said would cost more – US$20,000 and more.
“What we are seeing is the shipping costs to Jamaica are less than the shipping cost from the Far East to New York and that creates an opportunity for us here in Jamaica, because now those companies in North America have to pay such a premium that companies in Jamaica in manufacturing have a little bit of advantage over Far East companies,” Mahfood outlined.
He added: “If you take a company like Boss Furniture, which makes furniture and bedding, freight costs are a significant part of its business. So, if you are importing furniture into the US from the Far East and you now have to pay US$20,000 extra, a company in Jamaica with a good quality product can ship to the US, because US$20,000 may represent up to 50 per cent of the cost of the item [to the US importer]. Boss Furniture has increased its exports to the Caribbean and there are other examples of that, so we have to find a way of emphasising this advantage. While it might not be permanent, we have to wake up to that fact and take advantage of it, because once you establish a customer, you can continue to ship to that customer.”
Turning his attention to the impact the shipping costs are having on consumers, Mahfood told the parliamentary committee that the inflation the country is seeing because of “the substantial freight cost and increase in the raw material costs…will not come down for a while because cost increases have not stabilised as yet.” Inflation in Jamaica reached 8.5 per cent in October – the highest it has been since 2013, forcing the Bank of Jamaica(BOJ) to hike interest rates twice in the last few months to the highest it has been since 2018.
“When the BOJ continues to increase the interest rate in an effort to reduce a foreign-induced inflation rate, it does not, in my opinion, helps,” he continued.
Acknowledging that the higher rates will slow the economy, Mahfood told the committee, “just because the economy slows, if your cost inputs are [higher] and they are real, you have little opportunity to reduce your cost and stem inflation. I think the BOJ feels it’s sending a signal [for businesses] to temper price increases, but [businesses] have little choice on that.”
The central bank said in addition to hiking interest rates to rein in surging consumer prices, it will reduce the money it circulates in the economy and admitted that it will cause “reduce demand in the economy and with it the ability of businesses to pass on price increases to consumers.”
David Wan, president of the Jamaica Employers’ Federation, told the economic and production committee the “bulk of inflation” in Jamaica at the moment is imported through supply chain shocks, adding that “the increased interest rates alone will not resolve this problem, and it may indeed may exacerbate it.”
He, however, pivoted his arguments to call for a refocus on building Jamaica’s productive capacity. “Since there is no supply chain problems within Jamaica that are of signficance, we are advocating a programme to incentivise domestic production, especially food production in order to build our capacity to produce and sustain ourselves and to alleviate the inflation we are now experiencing. We think it’s an opportune time to reinvigorate and bring back to the fore, the whole buy Jamaica programme so that we depend less on imports at this point in time, I think it will help to solve some of the inflation problems we are importing from our trading partners,” he said.