London, May 23 - Record prices to ship raw materials are stoking inflation, as food and fuel costs soar, with transport costs exceeding the value of the commodity sent in some extreme cases, analysts say.
The Baltic Exchange chief sea freight index for global raw materials trade broke records for four days on the trot beginning last Thursday, easing from peaks only later this week.
Ninety percent of the world's traded goods, including vital natural resources, are moved by sea.
Philip Rogers, an economist and group head of research at ship consultancy Galbraith's in London, said costs to ship iron ore from Brazil to China, a big driver of the rally, has doubled since February. It now comfortably exceeds the price of the mineral.
The freight cost for a tonne of Brazilian ore to China is about $108 per tonne, while contract ore prices, newly negotiated by Brazilian miner Vale, the world's top ore producer, are about $80 a tonne.
"The combined costs, for the commodity and the freight have increased hugely," said John Kearsey an executive director at ship consultancy Simpson, Spence & Young in London.
He said the delivered price of the ore with the freight has risen by 75-80 percent in a year.
Shipping costs on the ore voyage are more than 10 times higher than the economic crisis of 2002 of $10 a tonne, when the dot-com bubble burst and trade was hit by the Sept. 11 attacks.
"It's staggering and there are more records to come this year," Rogers said of soaring transportation costs.
It's a similar story for other key building blocks of the world economy -- coal, grains, fertilizers and cement -- with transport costs adding to already inflated commodity prices, analysts say.
"The commodity price has gone up even faster than the actual freight component on a number of key export routes, but it (shipping) is still a big contributor to the overall inflationary picture," Kearsey said.
Coal on the world's benchmark route from Richard's Bay in South Africa to Europe costs about $52 a tonne to ship against $114 a tonne for the mineral.
The cost of the landed commodity for consumers has more than doubled in a year. In 2002, freight was just $5 a tonne.
Grain freight flowing from Europe to Asia, one of the world's most heavily traded routes, on a typical Panamax-class, 80,000 tonne vessel, has soared to about $118,000 a day. In 2002 it was just $9,400 a day.
"What you are seeing is a classic inflationary spiral: everybody is trying to raise their real price, whether it is the ore producers, the shippers, the steel producers, and it's all mutually self-defeating," said RBS Sempra economist John Kemp.
"The whole thing is becoming a vicious circle, everybody will try to pass on increased costs and fuel more and more inflation," he said.