MNI INTERVIEW:Jammed Ports, Trucks, Depots Mean Long Inflation

World Shipping Council CEO John Butler told MNI that crippled supply chains and relentless U.S. consumer demand are keeping price pressures high across the transportation sector, with little sign of easing.

“The real story is the sustained nature of that surge in demand, particularly in the United States,” said Butler, whose industry group represents container ship and vehicle carrier operators. “There’s so much dirt in the gears that it’s caused all these delays and it has caused a lot of price pressures across all modes of transportation.”

Media images of backed up shipping ports give too narrow a picture of the logistical albatross companies are facing, he said. “What’s different about this situation than some of the disruption we’ve seen in the past is that one, it’s global, two, it’s the entire inland supply chain,” he said.

“Because of the pandemic we’ve got labor shortages with respect to truck drivers, with respect to warehouse workers, and what it means is the whole system is saturated end to end. It’s not a situation we have ever seen since the advent of containerization 60 years ago.”

LONG-TERM CONTRACT RISES

Butler downplayed signs that shipping cost pressures might be easing as evidenced by measures like the Baltic Dry shipping index, stressing that prices are set in long-term contracts and the spot market.

“As people begin to negotiate contracts for the coming year with some experience of what the market looked like over the past 18 months, I think the expectation is more shippers, cargo owners, will seek to get space under contract” to lock in longer term rates, he said.

Butler also sees higher wage demands across the economy driving inflation in his own industry. “We’ve seen in many places difficulty in retaining truck drivers or finding enough warehouse workers. Folks have options in a tight labor market.”

The U.S. unemployment rate rate has fallen sharply in recent months to 4.6% in October, and vacancy-to-unemployment rates have hit unprecedented levels, though so far without a major uptick in wages.

NO MORE BACKROOM STORAGE

Wages are “always a big piece of the overall cost. The other thing that’s obviously driving a lot of both cost and pricing is the level of demand,” said Butler.

U.S. inflation has rapidly become a major source of concern for the Federal Reserve as officials seek to reposition a previously dovish stance to prepare for possible interest rate hikes in 2022. Earlier Thursday Mary Daly of the San Francisco Fed said labor supply is lagging through the pandemic and inflation means it's time to consider faster tapering and laying groundwork for a potential rate increase.

The pandemic’s acceleration of e-commerce is putting further strain on supply networks, Butler said. “When you’ve got big brick and mortar stores there’s a little bit of a buffer there in terms of holding supplies on site, in the backroom if you will,” he said. “When you take that buffer out, it just makes things more fragile on the land side.”