The Federal Reserve may have tools in its toolbox to address inflation, but there is nothing it can do to tackle one of the greatest inflationary pressures facing the country — supply chain costs.
The Fed has no control over port congestion (which is the cement in the trade pipes), poor schedule reliability as a result of the congestion and finally, China and its “zero-COVID” policies. All three have created delays that drive up ocean freight costs.
It has been well established these freight costs are being passed over to the consumer. Freightos laid the Consumer Price Index (CPI) over container rates from China to the West Coast and China to the East Coast. The trend is there.
While there are other factors in driving up costs — like the lack of workers — it cannot be refuted that maritime costs are adding to inflation.
Unfortunately, based on the flow of ocean trade, this sluggishness is not going away anytime soon.
Vessels continue to slow steam from China to the West Coast, and the zero-COVID measures in China are slowing down the processing of trade. These delays are a worldwide problem.
Trade is a connection of pipes, so if one trade lane gets backed up, it will impact others.
The word “schedule” in maritime right now is laughable. Global reliability dropped yet again, down 1.2 percentage points month-to-month to 32% on the Sea-Intelligence Global Schedule Reliability index. This marks the lowest performance ever since Sea-Intelligence started the measurement in 2011.
The window of a vessel’s arrival is over a week.
Alas, a “solution” in the eyes of the carriers only results in more trade disruption.
In an effort to make up time, ocean carriers are canceling sailings to get back to China. This disrupts the flow of trade at ports that are being skipped. It delays the arrival of products impacting inventories. It’s yet another pricing pressure.
One of the biggest burdens on prices is China’s zero-COVID policy.
The land-based restrictions at the country’s key ports are impacting handling capacity. Fewer people working means lower handling capacity. Lower handling capacity means longer waiting times for vessels at their berths.
Logistics providers in China tell American Shipper that zero-COVID is now slowing down the trucking in other pivotal ports in China, specifically Yantian and Shekou.
On Jan. 22, Shekou and Yantian ports both cut back on how early export containers could be dropped off. Under the new restrictions, full containers are accepted into the terminals only three days prior to the vessel’s ETA at Shekou. At the port of Yantian, containers can be delivered four days prior to a vessel’s ETA.
Before this new restriction, these containers were accepted seven days prior to a vessel’s ETA. This will only add to more sluggishness to the system.
Until the congestion at the ports is cleared up, zero-COVID policies are eliminated and inventory is back at healthy levels, the sluggishness of trade and the high freight prices will continue.
The maritime superhighway needs to get back to being the Autobahn – not the LA freeway at rush hour.
