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Why inflation could be transitory, and why that could be a bad thing.

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

What do you think?

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20 Comments

  1. I have news for you. There’s a lot of things people have no choice about buying.

    If stuff is not getting shipped here, prices will go up on what is here.

    Inflation and recession are not opposites. You can have both.

    In fact, it’s very common for countries with very, very serious inflation to also be in a deep depression. Costs rocket, and GDP plummets.

    I present exhibit A, Lebanon.

  2. Importers are willing to pay these costs, which should tell you inflation isn’t transitory. That’s why container and air cargo rates are through the roof, and still going up. Rate increases happening every 15 days right now. It’s insane.

  3. But as fewer people ship then the cost of shipping will go down. More ships and containers are entering the market. The market sucks at rapid moves.

    I am surprised that people are still not sending containers back as that was an issue several months ago due to wanting to turn the ships back ASAP to pick up the next load rather than waiting on containers to be emptied.

    The expectations that I have seen is that these issues will be smoothed out by end of the 2021, taking for granted nothing else bizarre happens (container ship stuck, geopolitical event, etc).

    We will see what really happens as a lot of the shipping issues were exacerbated by short-sighted moves with not taking containers back to port of origin.

    I still believe that a lot of the excess inflation is transitory. But at the end of the day the FED is pushing for higher long-term inflation (hopefully contained in labor costs).

  4. Funny that you say this. I work in trucking. We can’t get parts for fix trucks. We can’t get enough oil to even to oil changes currently. Something bad is on the horizon. Especially when all of logistics is suffering in different ways

  5. Ports r union controlled i believe. Unions r good at exerting control over its labor output, especially to slow things down. They could create a win-win with container sellers. Not saying they r, just a thot

  6. Companies are just going to prioritize certain orders until shipping costs come down. Those empty containers will make there way back to China or where ever because the ports don’t have unlimited storage for them. Also who wants a ship returning empty when it could be filled with a product (empty shipping containers).

    The client you mentioned that ships shoes every month will need to order more at some point or they will have nothing to sell. Maybe they order every other month and make sure it is fully packed, maybe they start sending shoes without boxes or with boxes that aren’t assembled yet so they can fit more shoes. (same thing they did in Wardogs with ammo).

    One thing I am confident about is that businesses will find a way to minimize costs and maximize profits.

  7. If you’re worried about inflation, just throw a up a hedge with either banks or in IV treasuries. Pretty much what I’ve been doing and have 17JUN22 20c options in TBT in case we become Venezuela. (Last part is a joke…)

  8. I think many people don’t realize the rickety ship we all live on.

    The whole modern world depends on a set of complex and interwoven network, both global and local. At the heart of this is infrastructure and manufacturing. Both rely heavily on human fucking labor…. but usually significant disruptions are relatively isolated and don’t occur at a global level. Anything that impact infrastructure and manufacturing like this, has the potential to spiral below the surface, as the system is sustained on its own momentum.

    It’s like simmering sauce on medium high, you got to keep stirring. Once you stop, you get burned fucking sauce at the bottom of the bottom. But what’s worse is that you don’t know yet, because the sauce on top looks great… until you try to stir it again and realize half the bloody sauce is fucking shit. Then you realize how fucked the sauce is.

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