The Great Freight Reset

For many months, I have been concerned about freight.  Fortunately, freight is the gift that keeps on giving for a blogger looking for ideas.  Unfortunately, it is going to be a challenge for businesses for the foreseeable future.

I wrote about UPS and FedEx putting customers on allocation on October 26th.  UPS stopped picking up from some retailers last week.  Think about that.  You order a present for someone and it does not ship.  What do you do? Do you go to the store to find it?  Do you wait and hope your package arrives?  I think consumers can deal with price increases.  I do not think anyone is prepared to deal with not having products.    

The supply and demand pendulum is clearly in the shipper’s favor right now.  From The WSJ:

The average spot-market price to ship a 20-foot box from Asia to Europe hit $2,091 this week, according to the Shanghai Shipping Exchange, surpassing the $2,000 mark for the first time since May 2010. The rate has more than doubled from $1,029 at the end of August. (Emphasis added)

https://www.wsj.com/articles/container-rates-from-asia-to-europe-climb-to-10-year-high-11606928233?mod=djemlogistics_h

A doubling of freight rates is not going to kill an economic recovery, but it will hinder margins for the short term.  Shipping delays and product shortages caused because of a lack of shipping capacity will hinder the recovery.  To combat these delays, businesses will start to carry more inventory.  That slows down the velocity of money (which is already low but that is a topic for another day and someone smarter than I).  More money tied up in inventory = less money for capital improvements or paying people.  That will hinder the recovery in the long run.  Higher prices and lower growth.  Can you say stagflation? 

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