Hey guys, I’m a frequent lurker here and decided to post today to give some insight about my hypothesis about why inflation could be transitory, but also why that’s a bad thing. Again, this is just my hypothesis, always make sure you do our own research.
Disclaimer, I currently work for a shipping company in California, so I can only provide insight about what’s happening here. A big issue with shipping right now is, as Powell said, that we are in a bottleneck. Let me explain to you why.
Usually when containers are shipped overseas from China to Long Beach or Oakland port, the containers are emptied at the port’s warehouse, and the empty containers are subsequently placed back on the vessels and shipped back to China on vessels. Well right now, these empty containers are not being loaded onto the vessels, which is leading to a container shortage in China. As a result, shippers in China are struggling to find bookings for their shipments because of the high demand of containers.
Before COVID started, the cost of 40 foot containers was about $2000. Now, we just received a quote for almost $20,000. That’s TEN TIMES HIGHER than what it was before. Inflation is happening because vendors have to increase prices of their goods to accommodate for the higher shipping costs due to demand for containers. Therefore, isn’t just pure inflation happening because of money being injected into the economy. This is due to a container imbalance across countries that is a lingering result of the COVID-19 pandemic.
We have a client who ships 40 foot container loads of shoes every month. Because the cost of a 40 foot container is now TWENTY THOUSAND DOLLARS, that client decided that it was too expensive and they would rather not ship. Guess what, if one client decides not to ship, there are many others that will stop shipping as well, and there is no sign that shipping costs will go down anytime soon.
Well, when people stop shipping, demand for containers will drop, the number of containers that are present in the US ports and China ports will eventually reach equilibrium. Therefore, shipping prices will go down and price of commodities will go down as well.
Transitory inflation, right? Guess what, when people stop shipping, economic activity will slow down, which is called a recession. Therefore, it could be a case that inflation is transitory; however, this could also accompany a recession or depression. Would love to hear all of your thoughts about this.
tldr; Due to container shortage, shipping costs are skyrocketing. I hypothesize importers will not be willing to pay these costs and shipping activity will go down, leading to slower economic activity AKA. recession/depression