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- Author
- Cannon Financial Institute
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- Published
- May 5, 2022
Articles
Structural Imbalances In US Economy Are One Factor Driving Inflation
Moving Goods From Point A To Point B Isn’t Easy
The pandemic showed us how black swan events can have a serious impact on our logistical systems. When the complex web of factories, long-haul trucks, freight trains, ships, ports, and air cargo began to partially unravel, we entered a classic situation of demand-pull inflation, too much money chasing too few goods.
Inflationary Pressure Appeared As Pandemic Stressed The Logistics System
Because of the pandemic, workers around the globe began to fall ill and continue to do so. Factories, ports, shipping lines, and countries have been opening and closing based on the spread of COVID-19. But this has not been synchronous, which has slowed down the movement of goods. The irony of the inflation pressure from lack of goods is that there are enough goods to satisfy demand in most cases, but they are in the wrong place.
The system to move them to the right place is maddeningly complex, and when just one part of it slows down, everything slows down. If you triple the time it takes to move a shipping container of machine tools from point A to point B, costs go up all along the line, which adds to inflationary pressure.
Infrastructure Investment Neglected
Structural imbalances, which are not easily remediated, have been caused by decades of underinvestment in roads, bridges, rails, and ports. During the pandemic, Americans spent less on services such as travel and bought goods such as flat-screen TVs. Importing the vast amount of goods ordered put a significant strain on ports from Los Angeles to Savanah to New York. These ports unload more containers from ships than ever, but they exceeded design capacity long ago.
Ships are often anchored outside ports waiting for berths to become available so they can be unloaded. “When bottlenecks emerge in the global supply chain, it can take more time for goods to reach store shelves, leading to price increases.” [1]
Empty Containers Clogging US Ports
When cargo containers are offloaded at ports, longshoremen stack them up in huge lots and trucks to haul them away to warehouses. When unloaded, trucks return the empty containers to the port. You would think that empty ships would take the containers back to wherever they are returning, but they don’t. It’s faster and cheaper for ships to unload, go, and leave empty containers. [2]
So, of every 100 shipping containers which are shipped to the US and Canada, only forty are taken back to their country of origin.[3] Thus the US has far too many while there is a shortage of shipping containers in China and Europe. [4] Shipping costs have gone up substantially which also adds to inflation.
Shortage Of 80,000 Truckers
Moving containers around the US has become more difficult because we have a shortage of 80,000 long-haul truckers in the US. Many have retired or thrown in the towel. Being the king of the road as a long-haul trucker is a terrible job with intense stress, low pay, and a life expectancy as much as 17 years lower than non-truckers. No wonder there is a shortage of 80,000 tractor-trailer drivers in the US. [5] This, too, adds inflationary pressures because the shortage of truckers increases the time in transit for goods which increases their price.
Massive Infrastructure Spending On Ports And Transport Links Has Begun
The recent infrastructure bill passed by Congress contains 17 billion in funds to upgrade ports. Grants have already begun to be awarded to ports around the country. Still, expanding port capacity and fixing rail and road transport bottlenecks will take years and the 17 billion will be parceled out over ten years. The pandemic pushed over a domino which pushed over another and on and on.
Resources:
[1] https://ajot.com/insights/full/ai-porcari-outlines-biden-administrations
[3] www.vox.com/recode/22832884/shipping-containers
[4] hillebrand.com/media/where-are-all-the-containers-the-global-shortage-explained
[5] https://cdltraining.org/truck-driver-life-expectancy/
Contributing Writer: Subject Matter Expert Charles McCain
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