the shortage – Now the prices for shipping are plummeting

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Delays, product shortages and price hikes have resulted from the shutdown of global supply lines during the pandemic. But since this summer a lot has improved.

Large container ships loaded with goods of all kinds are one of the major lifebloods of the world economy.

As of January, 109 of them were waiting off the California coast. The container ports of Los Angeles and Long Beach didn’t have the capacity to unload them fast enough. The result was a maritime gridlock with far-reaching consequences.

Consumers impacted by the shutdown and infection control measures had placed large numbers of orders which overwhelmed factories and ports.

Importers had to pay $20,000, just under 200,000 kroner at today’s exchange rates, to ship a single container from China to the US. In some cases, it was more than the value of the goods inside. Companies had to operate with order lists for everything from bedroom furniture to kitchen equipment if they were to get the goods.

The plug has come off

At the end of 2022, the picture is different. There is no queue of giant container ships on the Pacific coast of the United States. It costs $2,000 to transport a container of cargo from China to the US. A restaurant that needs a deep fryer can get one quickly and easily.

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Since the summer, the major bottleneck in the world’s supply system has eased. The network of factories, railways, ports, warehouses and shipping centers that bring goods to consumers functions much as it did before the pandemic put a brake on the wheels.

– We’re in a completely different situation than we were in, says Phil Levy, chief economist at consulting firm Flexport. The company has supply chains as a special field.

– There has been a marked improvement in the time it takes to carry things. If you look at how long it takes to get a cargo from Asia to a destination, the situation has improved dramatically, he continues.

The disappearance of bottlenecks also has another effect. Development helps curb the inflation that has ravaged much of the world over the past year. So far the effect is modest, but it is seen, among other things, in Christmas shopping.

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– Store shelves are full

Desirable Christmas gifts are often available. Maybe they are even a little lowered. The latest inflation report from the US government shows falling prices in categories such as toys, jewelry and children’s clothing.

– Store shelves are full everywhere. We do not see any notable freight shortages, says CEO Zvi Schreiber of Freightos Group, which is a digital platform for booking international freight.

– Supply chains are no longer a problem, says Timothy Fiore. He works on the collection of statistics for the American industrial organization Institute for Supply Management and is associated with the transport company Ryder System.

– He looked better for four or five months. Prices have also come down, he continues.

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Declining demand

The main reason the situation looks better now is that the demand for goods is falling.

Data from the US Department of Commerce shows that people’s spending on manufactured goods has declined over the past three quarters. The reason is central bank interest rate hikes, combined with inflation itself. Purchasing power weakens and the desire to shop decreases. The picture does not differ much from the situation in Europe and Norway.

The use of money is also changing. People who bought outdoor furniture, sports equipment and new electronic gadgets during the pandemic will now prefer to spend money on experiences rather than possessions. This increases the demand for services: restaurant dinners, airline tickets, hotel rooms and entertainment.

The consequence is that the demand for goods decreases and therefore, eventually, the pressure on prices.

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Closer to normal

At the large container ports in Southern California, it’s not as crowded anymore. One reason is that the companies have been sending cargo to ports on the East Coast and Gulf of Mexico to avoid delays. The Port of Houston in Texas says it handled 18% more cargo than last year.

An index measuring demand for shipments peaked at 115 earlier this year. It is now down to 53. This is below the average for the past five years. Industry experts say demand is getting closer to normal again.

Ports have also increased efficiency in many places, and shipping companies have deployed more vessels.

In some sectors, new producers also appeared when established market players were no longer able to supply. This means more competition, less scarcity and less price growth.

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More rocks in the sea, also for the automotive industry

When inflation first started to pick up last year, most economists blamed problems with supply chains. US Federal Reserve Chairman Jerome Powell was among them. He said that the price increase is a phenomenon that will improve when it is once again easy and cheap to transport industrial products.

By the end of 2023, it’s not that simple. Especially after the Russian invasion of Ukraine in February which wreaked havoc on the energy and grain markets. As a result, fuel, gas and food prices have skyrocketed and inflation has worsened dramatically.

Another problem that hasn’t been easy to fix is ​​the chronic shortage of computer chips. It will affect auto production through 2024, Federal Reserve Bank of Chicago adviser Kristin Dziczek said in a recent report. The situation is better than before, but the shortage is still hampering car production.

The fact that cars contain more and more computer equipment makes the situation even more difficult. The price of new vehicles is near a record high and is not expected to fall much in the foreseeable future. In the United States, however, used car prices are falling. They should go down a little more, but not to pre-pandemic levels.

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Chinese crown crisis

The coronavirus continues to affect China, which is an international manufacturing giant. Infection numbers are rising, coronavirus-weary residents are protesting, and some of the infection control measures are still tough.

Experts point out that the risk of disruption is high in major cities such as Beijing, Chengdu, Nanjing and Shanghai.

– Components produced in these regions find their way into almost every product we depend on on a daily basis, says the head of consultancy firm Resilinc, Bindiya Vakil. They assessed the corona situation in China and the impact on the economy.

A recent easing of strict infection control measures in the country could, however, be a sign of improving world trade.

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Some way to go

Economist Julian di Giovanni of the Federal Reserve Bank of New York has calculated supply problems and how they affect inflation. He estimates they are responsible for 40 percent of the price increase in the United States in the years 2019 to 2021.

– If there are no new shocks, it’s possible that the disappearing bottlenecks could create a sharp decline in inflation in the near term, he said in August.

Nonetheless, November’s data on inflation in the United States bodes well. They showed annual inflation of 7.1%, lower than analysts’ hypothesis of 7.3%. That is well below June’s peak inflation of 9.1%.

Shortly thereafter, the Federal Reserve poured some absinthe into the cup and adjusted its interest rate path slightly higher for 2023. They want to see more clear evidence that inflation is weakening before they pop the champagne corks. . This is well below their desired inflation level of 2% a year.

The price level of services is also considered more difficult to control with interest rate increases than the price level of goods. This could mean that 2023 will also be a difficult year, even though there is light at the end of the tunnel.