Freight not the only thing driving up costs – BCCI

Barbadians are being cautioned not to get overly excited about savings on commodity items just yet since there is skepticism around how the cap on freight costs will be applied.

At the same time, private sector officials have warned that prices continue to rise significantly on a number of imported items which had no relation to the freight costs.

While largely welcoming the Budget measures announced on Monday by Prime Minister Mia Mottley, the private sector said it was urgently awaiting clarity on the capping of the freight cost, which took effect from midnight last night.

In her presentation, Mottley announced that the cost of freight would be capped at $7,350 per 20-foot container and $8,000 for 40-foot containers, which represented the average costs of freight in 2019.

Addressing a post Budget breakfast forum, hosted by the Barbados Chamber of Commerce and Industry (BCCI) and PricewaterhouseCoopers (PwC) on Tuesday, President of the BCCI Anthony Branker suggested that continued increases on the cost of items being imported would have to be passed on.

“Already we are seeing our first cost on products that we import into Barbados across various categories increase by as much as 20 per cent,” said Branker, who said one private sector operator had reported “significant increases” from at least three suppliers in one week.

“I just wanted you to contextualise the expectations because when you have your first cost increasing by 20 to 25 per cent, and your freight component, even if it is capped, the net effect is not necessarily going to be a significant saving. So I just wanted to make that clear. We have to realise how significant the increases we are seeing already,” said Branker.

At the same time, he called for clarity on how the cap on freight would be implemented, as he explained that a one-size-fit-all approach would not work.

“There is so much ambiguity around what this means. As a practitioner and importer I would have thought that if you had a freight cost below the capped level you would apply that value in the calculation of your CIF. I am understanding that is not how it is going to work,” Branker said.

“I am understanding also that if you are bringing a 20-foot container it will be one fee regardless and if you are bringing in a 40-foot container it is that $8,000. That makes no sense, but we will listen to the response from the finance minister and see how that works,” he explained.

“I am saying that if that is the intention there is going to be no savings because there is a tremendous amount of goods that are not of CARICOM origin that we pay less than $3,000 on a container. Why would I now all of a sudden be paying $7,000 and $8,000 for that container because that is the cap?” he said.

Meanwhile, Deputy Principal of the University of the West Indies (UWI), Cave Hill Campus Professor Winston Moore described the cap on freight costs as an interesting measure in addressing price increases.

He said “As this come into Barbados we are going to see this passed on but it is going to take a while before those goods hit the shelf, so there is going to be a little bit of a lag effect coming through.”

He also welcomed the cap on the Value Added Tax (VAT) on gas and diesel effective Wednesday March 16, 2022 for the next six months, saying it would be “quite useful” since this would shield residents from an increase in the price of oil and allowed government to collect a steady revenue.

However, Moore said while it would help households and delivery companies, the expenditure for government to import fossil fuel could go up and would need to be offset.

“Even though this policy has been announced, I suspect that this is going to be one of those things that might potentially come off in the next couple of months when prices in Barbados start to increase . . . I was thinking of it as a lot of smoke and mirrors because it is such a small adjustment that for us as consumers it really doesn’t impact on anything, but it does have a large impact on Government,” said Moore.

In addition, the Professor of Economics pointed out that inflation could continue to push prices up, as he pointed to rising inflation in the US.

“Even though I know we would have focused on prices of petroleum yesterday, we still have the fundamental thing that pushes up prices in Barbados is the price of food. So when you have prices in the United States going up by eight per cent it obviously means that is going to feed through into the price basket in Barbados as well and we are likely to see a similar rate of price increase in Barbados over the next couple of months,” he cautioned. marlonmadden@barbadostoday.bb