Higher Shipping Costs, Higher Prices
There may be an inflation driver hidden in one of the most interesting consequences of our year-long global pandemic. Americans stuck in their homes have sent off a surge of orders from factories all over the world, namely in China. These items are carried across the Pacific in intermodal shipping containers (think: the back of a tractor-trailer, except without wheels). This surge in demand for exercise equipment, video game consoles, and pastry mixers has caused the containers to pile up at American ports, while China and Asia in general are experiencing container shortages. At the same time, the pandemic and its restrictions have limited the availability of dock workers and truck drivers, causing serious delays in handling cargo on both sides of the Pacific.
Making matters worse, international air travel has been severely constrained, as most countries are not accepting tourists who might bring the COVID virus with them. Passenger planes that once carried passengers above decks and cargo below are grounded, shunting even more shipping volume into ocean containers.
The ripple effects of these disrupted shipping chains are now being felt in higher costs for transporting American grain and soybeans, Asian-manufactured flat panel displays and smartphones, an unprecedented amount of disinfectants, and have generally driven up the costs of just about everything that is grown or made somewhere other than where it is ultimately purchased. The last three months of 2020 saw shipping prices rise to heights never before recorded—and that doesn’t project to change, now that shipping containers are all piling up in the wrong places. The backlog in volume is expected to remain until mid-summer, with inflationary pressures building as the sellers of food, electronics, exercise equipment, etc., raise prices to cover their shipping costs.