We've discussed in the past how trillions of dollars in government "stimulus" money has goosed the inflation monster into action, and we're seeing the results now on our supermarket shelves.
However, there's another angle, and that's plain and simple corporate greed. There are far too many companies out there who'll gouge the market for the highest price they can get, irrespective of whether or not there's economic justification for that price. "Make hay while the sun shines", is their motto, and they do so at our expense. They will, of course, deny that they're doing that, and blame "input costs" or "market conditions" for the price increases - but we all know what's going on. They're in pursuit of the Great God Profit, and that's all they care about.
The effect of their greed is, of course, visible in the overall inflationary climate. Wolf Street picks up on some of its effects, as well as those caused by government intervention in the markets.
In the US, where consumer price inflation is now surging at the hottest rate in years, input prices for companies have exploded, which will further transfer into consumer prices down the road.
The Producer Price Index for final demand, which is an indication of input price pressures that companies face, and that they’re trying to pass on to their customers, spiked by 1.0% in July from June and by 7.8% year-over-year, according to the Bureau of Labor Statistics today, by far the highest rate in the data going back to 2010:
And the ocean freight rates charged to ship containers across the world have exploded. Drewry’s composite World Container Index in the latest week, reported today, rose to $9,421 per 40-foot container, up by 358% year-over-year (chart via Drewry):
Specifically, rates to ship a 40-foot container in the week through August 12 from Shanghai to:
- To Los Angeles: $10,322 (+241% year-over-year)
- To New York: $13,505 (+285% year-over-year)
- To Rotterdam: $13,653 (+636% year-over-year).
These are astounding freight rates – to be passed on to consumers just for the holiday season. Makes you wonder if the big container carriers aren’t engaging in some classic price gouging. Why? Because they can. That’s what inflation is all about: Companies get away with raising their prices whatever the reasons may be. And those higher prices become costs for the next company, and they get passed on further.
The other way it’s less costly, but also a lot costlier than it was a year ago. For example, from Los Angeles to Shanghai: $1,461 per 40-ft container (+182% year-over-year).
. . .
These pressures in the supply chain and transportation systems that make supply chains work didn’t come out of nowhere. They came from a hyper stimulated economy, to a large extent in the US, where the government and the Fed threw many trillions of dollars in all directions that then needed a place to go. And some of it ended up getting spent on goods that are mostly manufactured overseas.
This mix contributed to the beginning of an inflation spiral. While some of the issues will eventually be resolved, these higher prices have led to higher wages that are now further pushing up prices, and companies are raising prices to deal with higher wages and higher input costs, and there are all kinds of signs that the whole cycle is anything but “transitory,” especially with the massive fiscal and monetary stimulus still raging – under these conditions!
There's more at the link.
Do note, in the excerpt above, the cost of shipping a container from China compared to the cost of shipping one to China. Same distance, same bulk, but wildly different costs. Shipping companies are doing it because they can. Their customers can't turn to anyone else to replace their services.
Sadly, this is now having severe repercussions in smaller shipping markets around the world. From Africa, from South America, and from smaller Asian countries, we're hearing reports that ships are calling at their ports less frequently, because the demand on major trade routes between China, the USA and Europe is so strong. What's more, there are fewer containers available to serve smaller markets, and the suppliers from whom they normally buy are no longer selling to them because they can make so much more money selling to bigger markets. Shortages of critical items - spare parts, medicines, even food - are thus becoming more frequent in smaller countries.
We seldom think of our government's policies, and our economic activity, affecting other nations on the far side of the world, but that's the effect they're having right now. It's pretty much inevitable. Disruption and economic turmoil aren't insulated from the rest of the world. They spread like a virus, all over the globe.
Peter
11 comments:
What the market will bear..
"They're in pursuit of the Great God Profit, and that's all they care about."
Hey, ya gotta pay for those CRT symposiums, BLM lectures, and Tranny Story Hours at corporate daycare somehow! Soros' money only goes so far.
In ad valorem property tax States, the valuations are insane and thank God, for the few limits on the increases. But, no, according to politicians, they are not increasing taxes. The property is just worth more. End result is more money coming out of pocket to pay for the not-increasing property tax.
If property is commercial, there is no limit on the increase.
What about inventory taxes? Are they increasing too?
All goes into the pricing.
Almost as if it is all designed to collapse on its own weight.
Have to disagree on this one. Yes, prices are going up. Low supply and high demand make prices increase. If some enterprising individual can make it cheaper, they will force the prices down. When supply lines are fouled up and demand remains constant the prices will go up.
Another question is who is fojling up all the supply lines. It's not the corporations, it's the governments. China in particular, but most every gov't is forcing random shutdowns. Global trade and just-in-time manufacturing was in a fine balance, but had little resilience. Too many disruptions in too many places and soon everything is jammed up. Lack of one small but necessary part shuts down the entire product line.
Don't fall into the leftist trap of blaming "corporate greed". Down that path lies socialism.
Feel free to blame corporations Price fixing conspiracies are the norm , have been forever,
Adam Smith Wealth of Nations
People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public or contrivance to raise prices”
A 2 TEU bid (for a 40' container slot) just hit $20,000 a few days ago. I'm not sure if it was a China/Los Angeles or EU-US liner service slot or not, but damn.
This week I saw small feeder-sized ships clogging up the berths normally filled by UltraLarge containerships in the ports of NY/NJ. This is on top of the Handymax feeder ships that normally trade in Red Hook and Howland Hook, the smaller terminals that connect to the 3rd world. There isn't idle tonnage for container traffic anywhere to be had, and I expect that we'd have seen some breakbulk cargo ships refitted for container service, but the dry cargo index prices are spiking too, so bulk ships seem to be in demand as well.
The Ningbo-Zhousan megaport complex is currently shut down for Covid. That's going to play merry hell in Los Angeles, which is the next stop, and LA is already swamped because they're playing catch up with the port of Dalian having been shut down half the summer, and the reopening blitz started arriving last week and is continuing.
There is still a *Huge* problem with rollover, containers not being loaded on the ships they were paid to be loaded on. Rollover is like being bumped for overbooking on an airplane. It WAS 30-35%. It's now more, westbound, and American exports are even worse, as empty containers get priority to head back to China.
Oh, The container companies are posting record profits this week. The big 3 are all over 3 billion for the last quarter alone. The worst-performing company was Hyundai Merchant Marine, who only made a couple hundred million.
The candle on the cake is the new availability of Covid-related delay insurance, which speaks volumes.
Speaking of volumes, bunker volumes are just erratic. I'm carrying some very small parcels of Ultra Low Sulfur Fuel Oil, (the good stuff, think of hi-test at your local gas station) and one of the bigger suppliers is substituting more expensive Low Sulfur Marine gasoil here and there to fulfill demand. Chinese companies were early adopters of expensive emissions control systems, allowing them to burn cheaper fuel.
The transition to fewer sailings using larger ships has led to less flexibility in the supply chain, IMO. Diversions and changes in port of call for ships on liner schedules seems to be on the decline. And I can't help but think that the little feeder lines that are supplying the 3rd world are probably being missed a lot as they do get shunted to the large ports in the developed world. There are no feeder-sized ships available for love or money.
Oh, and also even bunker suppliers like me are having labor issues. So that sucks, too.
I wonder if this will do anything for Safmarine, who I believe Peter used to sail with.
If all your accumulated wealth of generations which is being strip mined and shipped east couldn’t be handled by wire transfers, then the rates for containers going from Long Beach to Shanghai or Ningbo would be much higher and closer to opposite direction’s rates.
Simple really. You buy all your #@$% from China. China doesn’t buy all that much #^&* from you.
Not in the shipping industry, but it’s a damn tough trade to be in with big cyclical swings. I wonder how much the risk of having ships impounded for a month because some Filipino in the engine room sneezed in front of a quarantine officer is affecting the numbers?
Do note, in the excerpt above, the cost of shipping a container from China compared to the cost of shipping one to China. Same distance, same bulk, but wildly different costs. Shipping companies are doing it because they can. Their customers can't turn to anyone else to replace their services.
No. That's a failure to understand demand and pricing to ration it. There isn't enough capacity for the demand to transport to the US. So companies raise prices and those people whose demand was only because it was cheap will do something else. The price of containers on the reverse passage is basically anything above zero because they need to get the containers back anyway and if they can charge some kind of break even price that's fine because they'll make the money on the next outbound leg
This is exactly the same as U-haul charging 5x for trucks from Ca to Tx than it does in reverse. The demand is for the container from China to the US (or the truck from CA to Tx). UHaul wants the trucks back in CA for the next load of californicators to rent and if not enough people will rent them in that direction they have to hire people to drive the things there which is even more expensive
Francis Turner, I believe your statements are based on an assumption that shipping is a free market enterprise. If it ever truly was, it certainly is not now. The largest shipping companies are semi-autonomous state owned businesses. A.P. Moller-Maersk says they're not actually the government of Denmark (but they're backed and subsidized by their largest investor... the government of Denmark). Evergreen Shipping is straight up the Chinese Communist Party, as is COSCO, the China Ocean Shipping Company. The Germans have Hapag-Lloyd, the Japanese have NYK-Line and the US has the WTO up our ass to protest subsidies to our internal shipping, in the name of preventing the formation of an American state-owned shipping line while ignoring the other global players' state-owned shipping lines.
So while the present US presidential administration was refusing to nominate a Maritime Administrator this year, the Department of Commerce had to send investigators TWICE to New Jersey on fact-finding trips to try to figure out why a country who's name rhymes with China was rolling over loaded eastbound shipping containers in favor of empties to the point of losses being incurred by American exporters.
This further gets muddied by sharing agreements made by some shipping companies, who share costs on liner routes using mutual carriage agreements, which is known in some circles as price fixing but is not illegal in shipping because the WTO says so because the WTO is a corrupt bunch of old-money European billionaires who tend to own ships.
It is wrong to make a moral judgment about "corporate greed" and say you believe in freedom. Economic freedom is just as important as any other kind, and the price mechanism is how people communicate about what they want around the world. In fact, it is the only morally legitimate way to balance the interests of buyers and sellers.
If freight rates are too high, that will create an incentive for people to re-start manufacturing in their own countries. That would have an enormous positive effect on the US and Europe. Whether the rulers of these countries impose counter-productive policies on the people is a separate question. (SWIDT?)
Paul, Dammit! Evergreen is a Taiwanese company. They'd be unhappy to be called Communist West Taiwanese.
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