Effect of shipping containers on inflation – News Couple

Effect of shipping containers on inflation

If you’re building a house in 2021, things are going to get tough. The wood cost Jumped from $354/1,000ft in May 2020 to $1,683 in May 20211. And even if you’re not building a home, you’ve likely felt the same problem across patio furniture, gym equipment, and more.

Yes, unprecedented consumer demand, and ample money to spend, continued to drive prices and inflation indicators higher. But it is not just a request. Global shipping, which is usually a behind-the-scenes actor that transports everything we eat, wear and use by air and ocean, may be the main cause of rampant inflation.

Inflation nation in 2021

Consumer prices for goods, excluding energy and food costs, posted record jumps in April and May, with total Consumer Price Index It rose 5.4% in June compared to last year2.

Product shortages due to changes in consumer behavior are part of that story – where demand outstrips supply, prices of some goods rise, and delays in the supply chain make these shortages worse.

But as consumer spending shifted from services to goods nearly a year ago, demand for ocean freight has consistently outpaced container vessel capacity, driving freight rates to record levels.

Baltic Fritos Index Spot price for 40ft container shipping From Asia to the US West Coast in June it was nearly $7,000, more than four times the price in May 2020 before consumer spending changed3. And with many importers paying thousands more in additional fees to secure scarce space, some companies are paying more than $20,000 per container. These hikes not only increase logistical costs for importers, but also raise prices for consumers.

“Container space is often sold at premium prices within half an hour of its release. And then at a certain point, it doesn’t even matter how much you are willing to pay, there is simply nowhere to go. Prices may not drop until some goods are too expensive for consumers.”

– Robert Khachaturian, Director of Operations, Freight Right Global Logistics

Global Freight’s contribution to inflation

In 2019, US companies spent an estimated $48 billion on Ocean Logistics4, representing 1.07% of all US spending on goods, and 0.33% of total spending Spending on goods and services5. The cost of shipping a container from Asia to the West Coast of the United States in June of 2021 – represents both containers shipped under annual contracts cross spot market – Almost 200% more than the previous year6.

So using 2019 as a baseline, we estimate that shipping costs as a share of consumer spending doubled to 2.14% of total spending on goods and 0.66% of total spending on goods and services. With overall price inflation coming in at 5.4% last year, and at a much higher rate in the past two months, this back of the envelope account points to increased shipping costs as a major contributing factor.

As Wall Street economists watch the recent peak in inflation with concern, it’s important to note that while sea freight has hardly been a factor in inflation in the past, the unprecedented sharp rise in freight rates last year is actually an important factor for current inflation.

On the plus side, freight costs are a contributing factor to inflation that may soon reverse, either as spending shifts from goods to services, or as new ships hit the water.

1Trading Economics https://tradingeconomics.com/commodity/lumber
2US Bureau of Labor and Statistics https://www.bls.gov/cpi/
3Fritos Baltic Index fbx.freightos.com
4Supply Chain Management Experts Council (CSCMP) Logistics Status Report 2020, as featured in the Supply Chain Brief, http://www.scdigest.com/first Thinkts/20-06-25_State_of_Logistics_Report.php? The cost of a US business includes domestic and export costs as well as import costs, but since export costs generally range from one-third to one-fifth of import costs per container, and since the volume of imports greatly exceeds the volume of exports, especially during a pandemic, we will use the $48 B figure.
5US Bureau of Economic Analysis, Department of Commerce, Table 2.3.5 PCE by major type of product, https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step = 2 & isuri = 1 & 1921 = clear
6Based on the Freightos Baltic Index for spot market data and the China Containerized Freight Index for contract market data, assuming 60% of volumes shipped by contract and 40% spot on.

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