The supply chain is fine, but inflation is not

The supply chain, a major headache during the pandemic economy, is in much better shape.

Containers that took up to ~120 days to ship between  warehouses in China and the US during the pandemic now take ~14 days, and the spot price for shipping a container from China to the US has declined from a peak of ~$20k to ~$1.2k, roughly equivalent to pre-pandemic prices.

Yet many shipping prices remain high, according to Bloomberg, contributing to inflation.

Why?

For one, China to the West Coast isn’t the only prominent shipping route. Many American goods come from Europe, where prices for shipping a container are ~3x 2019 prices.

There’s also timing:

• Per Bloomberg, 70% of freight on a given ship has been negotiated under long-term contracts, so many importers are locked into rates set in 2021 and 2022.
• Big companies are reluctant to change their prices, often adjusting them a couple times per year.

Plus, it still costs a lot…

… to store freight and to ship it by rail or truck in the US.

• Warehouse vacancy rates are low, pushing up rents.
• The logistics sector has struggled to hire and retain employees, which has led to higher salaries and costs.
• The price of diesel is ~2x its summer 2020 price.

It’s even gotten more expensive to build new truck trailers.

Retailers and industry leaders don’t see the prices of goods falling much until at least later this year, per Bloomberg. But logistics industry leaders are meeting in Los Angeles this week to discuss the need to restore trust in the supply chain.

The convention, as Bloomberg’s Laura Curtis described, will be a regular “Davos on the Docks.”