Tag: inflation

“the cost of sending goods across the Pacific is still more expensive than it was before the pandemic. This price surge is a product of not only the delays and bottlenecks in the supply chain created by Covid-19 but also the huge increase in demand for consumer goods that followed. This demand was far greater than what shipping companies or American ports could handle. As a result, the price of shipping went up, creating increases in costs for importers and retailers within the United States. Those costs have now been passed on to consumers, which is partly why many everyday items are more expensive lately. (Surging gas prices, the war in Ukraine, and pandemic-era financial policies may also be driving inflation.)

Experts told Recode it’s unlikely that Biden’s crackdown on the shipping industry will significantly reduce the cost of products, even if it will make some meaningful improvements to operations at America’s ports. The small group of companies that dominate the shipping industry remain extremely powerful: They still benefit from longtime exemptions from antitrust laws and continue to wield enormous power.

The situation serves as a reminder that, while specific segments like the ocean shipping industry can play a massive role in influencing the prices of everyday goods, they’re also participating in the much larger economic system of supply and demand. This system involves everyone from the companies that build ocean vessels that shipping companies use to parents desperately trying to buy Barbie Dreamhouses for their kids. This complexity can make price increases extremely hard to rein in, even if you’re the president.”

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“Factories, understandably, closed because of Covid-19, and that created manufacturing delays, threw schedules off course, and ultimately led to shortages of all sorts of products. The pandemic also meant that people spent more time at home, stopped buying services, and cut back on travel. As a result, they started to spend a lot more on consumer goods, goods that typically needed to be shipped to the US from abroad, primarily from countries in Asia. Shipping became harder to provide and much more in demand — which sent shipping prices skyrocketing.

Now these shipping companies are facing a lot more scrutiny as well as growing concern that they’ve used their longtime antitrust immunity to profit during a crisis. Before the pandemic, these carriers had an average operating margin of just under 4 percent, but during the third quarter of last year, that margin grew to more than 50 percent. This has made importing goods in the US much more expensive: At the end of June, it costs nearly $7,600 to rent a 40-foot shipping container traveling across the Pacific compared to about $1,300 in early 2020, according to one shipping industry index.

“Today, the top nine companies control 85 percent of the trade. Go back 15 years ago, the top 10 companies controlled 50 percent of the trade. They basically ran companies out of business and bottom up,” Sal Mercogliano, a maritime history professor at Campbell University, said. “They were in a pretty vicious rate war, and then all of a sudden Covid happens and rates go through the roof.””

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“Enter the Ocean Shipping Reform Act, which the president claims will lower costs and help fight inflation. The law, which was signed by Biden in June, empowers the Federal Maritime Commission, the agency that regulates shipping into the US, to investigate carriers’ practices and help craft new rules. The government will also create a more formalized way to track chassis, the metal frames that are used to carry shipping containers at the ports, and expand the commission’s powers when the ports are extremely congested. Finally, the law targets the increasingly common practice of ocean carriers transporting empty containers back across the Pacific instead of waiting to fill their cargo with American exports, including agricultural products that American farmers have sold to customers in Asia.”

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“The global supply chain is made up of many different countries, companies, and people, which means that the price of a single good is influenced by myriad factors that are incredibly hard to control. That means that, for now, you shouldn’t expect Joe Biden’s mounting effort to regulate the shipping industry to have an immediate impact on the price of the stuff you buy.

In reality, the best way to lower the cost of shipping is for people to stop buying so many things that need to be shipped. Given that the economy doesn’t seem to be in a great place right now, that just might happen sooner rather than later. For what it’s worth, imports to the US seem to be declining, and American consumers appear to be returning to their pre-Covid spending habits.”