Shipping prices have plummeted, but the consumer is still paying dearly

International airlines, including Lufthansa and American companies, are gradually returning to Israel. Alongside the vacation options that are reopening, the supply of air cargo capacity has also increased significantly. Demand, on the other hand, is not growing at the same pace, and transport prices are on the decline. This equation should also affect the pockets of consumers, but in practice, price drops are not yet on the horizon.

For a long time, the supply chain crisis and the war served as a perfect excuse for importers to raise prices. The government, for its part, allowed the situation and failed to effectively address the cost of living. It is important to note that maritime shipping barely changed during the war, except for the short period of the Houthi crisis in the Bab el-Mandeb. Maritime imports functioned almost without interruption, and today there is no abnormal demand in the shipping world and transport costs are maintained.

Air shipping, on the other hand, experienced shocks and increases in transport prices, which led, among other things, to an increase in consumer prices. Now, with the opening of the skies, we are seeing a significant decrease in transport prices, which recently dropped from about $4 per kg to only $2, and even less for imports from nearby destinations. Added to this is the decline in the dollar exchange rate, which benefits importers. There is fertile ground here for price reductions, but it is not reaching the pocket of the Israeli consumer.

The issue of import and transport, even if it is not in the headlines every day, affects the pocket and daily life of each of us — in the supermarket, in clothing stores, and in fact everywhere. But even when the cost of import drops, and even though the state has lowered barriers, the pendulum moves in only one direction: the consumer feels the increases in shipping prices immediately, but when prices drop — the reductions disappear along the way.

One of the reasons why the demand for air cargo has not grown at the pace of supply lies in a worrying process that Israel has been experiencing in recent years: the transfer of production and assembly activities to other countries. This is, among other things, due to the damage to the supply chain during the war, high operating costs, labor shortages, and increasing employment costs. This is a process with broad implications for the economy, employment, and the cost of living.

The election period is an opportunity to talk about the day after. The current situation requires significant government intervention, including assistance programs for industry, encouragement of investments, regulatory relief, solutions for bringing in professional workers from abroad, and subsidies where necessary. Active action is required to stop the flight of industry, otherwise the process will return to us like a boomerang and affect prices and the economy as a whole.

To solve the knot, it is not enough to have reliefs and benefits like lowering customs duties on some products. A clear policy is required that will ensure that the reduction of costs along the supply chain will eventually be passed on to the Israeli consumer. Within this framework, it is necessary to open the market to real competition and stop creating difficulties for parallel imports, for the sake of healthy and fair competition that will break the monopolies in the economy. The state must stand up to all factors, take into account geopolitical and global influences, and condition benefits and regulatory reliefs on proven price reductions for the consumer. The public felt the price increases well in recent years. Now it should also enjoy the reduction in costs that has been created following the stabilization of the market and the drop in transport prices.

Gal Shaham is the Deputy CEO of the International Shipping Division at the UPS franchisee in Israel.