In 2021, ocean freight (and domestic trucking) began to become scarce and very expensive. Anyone in the business knows what I mean. Carriers were giving 7 day-14-day rate validity; meanwhile the containers would not depart for 45 days. This would subject the rates to 2-3 potential (and very likely) rate hikes in this period.
Regardless of the increases in pricing, demand for import containers rose every month from March 2021 through June 2022. Below is a reflection of the price increases from the SCFI and the consistent rise over the past 13 months.
In this period, consumer goods remained flat. Not much really adjusted with exception to the used car market; however, this was for a different reason.
In this period, consumer goods remained flat. Not many goods adjusted with exception to the used car market; however, this was for a different reason. Clients every day would pose the question-when will the rates come down, when will things normalize?!?! My answer was always the same-when demand decreases! See the below chart from freightwaves highlighting the demand, mirroring the price above. With demand rising since March 2021 and remaining high….until June 2022. But then what happens? Why?
In Q4 2021, I had the opportunity to sit in on an economist speaking about this very phenomenon. He went into granular detail about the US Economic state at the time and moving forward. One of the key takeaways was the elevated shipping prices we were seeing had not made their way all the way through the supply chain yet. These elevated prices would not be felt by the consumer until earliest Q1.
These elevated shipping prices have been pushed to the consumer now and it has resulted in a wave of inflationary concerns across the nation. Another added event was Russia’s invasion of Ukraine which is having an effect on food goods and some increase on fuel.
Consumers are not happy about the new prices being passed on to them and it is drastically slowing down demand. Perhaps it is due to the tripling of the fuel + grain increases + transport increases that have caused this sudden drop. The overall decrease in imports is 36% from all countries. Already, ocean prices have begun to fall and the “premium” rates.
Is this a sign that prices will come down as well? Already, factories are reporting decreased lead time which is a sign that US Purchase orders are decreasing and/or cancelling. Inventory levels are fully stocked here in the US already. If the transportation increases were not felt for 6-9 months, perhaps consumers will begin to see these “REDUCED” prices by Q1-Q2 2023?
The X Factor in this scenario is the Ukraine conflict and the effect it is having and will continue to have on fuel and food products. However, it does seem logical that at least 1 factor causing inflation is on a downward trend.