The following video is brought to you courtesy of the Epic Economist YouTube Channel. Click the video below to watch it now.
The global shipping industry is facing the worst crisis in the history of container freight – and a massive wave of disruptions is ahead. According to the big boss of a major logistics business, Rob Lewis, the operations director of Meachers Global Logistics, a “perfect storm” is leaving global supply chains in total chaos as freight rates just skyrocketed to the highest level ever recorded. This catastrophic mess in global supply chains started during the first rounds of lockdowns when countless businesses were shut down and shipping companies reduced the number of cargo vessels being sent out. However, when stimulus money started to frenziedly fuel consumer demand, global supply chains simply couldn’t cope with the unexpected boom in business.
As a result, it’s getting incredibly difficult – and expensive – for stores to restock their shelves, while manufacturers, carmakers, and builders can’t get the parts they need, and farmers – particularly small farmers and ranchers across the U.S. – simply cannot afford to export their products anymore. All of these reasons, analysts say, are contributing to a huge jump in consumer prices. But so far, most people remain unaware of the full impact the current shipping crisis will have on higher prices for consumer goods.
Those increased shipping costs and delays are starving the economy of the products it needs and contributing to widespread shortages. But not only consumers and retailers are being affected: most American exporters are reporting that shipping companies are so desperate to rapidly get containers back to China that they’re just emptying the containers and promptly returning to the Pacific without waiting to fill them back up with products made in the U.S. Consequently, this is leading millions of small U.S. exporters to the edge of financial ruin and only expanding our ballooning trade deficit.
This week, amid continued reports of container shortages, shipping capacity constraints, port congestion, and a sudden uptick in consumer demand, new data released by Drewry Supply Chain Advisors indicated that the cost of shipping goods from Asia to Western countries has exploded to new highs. In 2020, the average port-to-port spot rate from Shanghai to Los Angeles was at around $1,500 per 40-foot container, but in the week ended July 8, 2021, that price had soared to $9,631, marking an increase of over 500% from early 2020.
Drewry says this phenomenon is a major “market shock” that likely began shortly after stimulus money started fueling an e-commerce boom in June 2020. However, a recent study has shown that those skyrocketing freight costs are having a detrimental impact on small and medium-sized exporters. “This competitive environment affected many but especially all the SMB exporters who were burdened by these high costs,” it said. The study estimated that this year alone, almost $200 billion in losses resultant from non-shipped products will weigh upon the balance sheets of small and medium American businesses. In other words, the “economic boost” provided by the Federal Reserve is actually causing our economy to stall as millions of U.S. businesses simply cannot afford to send their products overseas.
Needless to say, U.S. consumers haven’t seen the worst of rising prices just yet. Part of the reason why consumer prices have been surging recently is due to a global container shortage aggravated by congestion in several key ports. But another reason why it’s getting so hard for companies to find space in shipping containers is that a new virus outbreak in China has led authorities to shut down several key ports for weeks, clogging several spots critical to global trade, triggering a shipping backlog that could take months to clear and cause to shortages during the year-end holiday shopping season.
Although the rate of infections has improved since then, for global trade, the damage has been already done. In other words, Americans are about to experience exceedingly painful years of inflation. The ongoing freight crisis is just one of the many factors contributing to the surge in consumer prices. Keeping in mind that our country is going through the most devastating drought ever recorded, with millions of acres of crops being destroyed or abandoned due to the lack of irrigation water, while commodity prices have been reaching new highs and more shortages are expected to happen in the coming months, food costs are set to explode to levels most people aren’t prepared for. Meanwhile, numerous industries are still waiting to get the imported products they need to properly operate – and the longer the imbalances between supply and demand persist, the more devastating will be the effects for both businesses and consumers.