You Won’t Hear This Until It’s Too Late

In the last few weeks, the Wilmington police have been busy handing out hundreds of citations for illegal parking.

At first glance, it doesn’t sound too remarkable.

But that’s until you hear that the citations are in fact for illegally storing shipping containers.

You see, Wilmington is a neighbourhood in Los Angeles near the port where there’s a huge backlog, with over 100 ships lining up outside trying to unload.

One of the main reasons for the backlog is that there’s nowhere to put containers after they’re brought back empty.

Containers have been piling up at and around the port because ships don’t want to take all those empties back. As a truck driver explained, ships get a lot more going from Shanghai to Los Angeles than the reverse:

A year ago, you would just do a transaction, bring an empty in and get a load out on the same chassis. Now [ports] are not accepting any empties because they are not going back on the ships. We’re told the ships cannot make money on the empties.

Obviously, that also creates another problem.

If ships aren’t bringing back empty shipping containers to factories, producers have nowhere to transport their goods back to the US. In fact, there’s a container shortage in China, that’s already been ramping up container production to increase supply.

Now storage containers are crowding Wilmington streets. They’ve been left on the back of trucks or dumped on the ground. Some truckers are even saying that it’s cheaper to abandon the load than pay for storage fees.

A similar thing is happening in the nearby neighbourhood of Long Beach, where the mayor has temporarily changed the rules for stacking shipping containers. While the rule is that truck yards are allowed to stack up to a maximum of two containers, they’re now allowed to pile up to four or five if they get permission. The idea is to rid trucks of empty containers so they can pick up more cargo from the port.

But as you can imagine, residents aren’t happy.

Another main reason for all these bottlenecks along with container shortages is that there aren’t enough truck drivers. According to the American Trucker Association, the industry is running short of 80,000 truck drivers — an all-time high. And they expect that shortage to double to 160,000 by 2030.

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So yeah, these supply chain problems aren’t likely to clear any time soon.

Supply chain disruptions are creating shortages on everything from food to electronics. You name it, everything except for money is in short supply.

It’s part of the reason why all this is happening. Central banks have flooded the system with money during the pandemic, and there’s so much money around that even though consumers were stuck at home unable to access services or travel, demand for goods increased. It’s a supply and demand problem.

But anyway, it looks like supply chain problems are getting worse. It’s something US Federal Reserve Chairman Jerome Powell admitted this week during a virtual conference:

Supply-side constraints have gotten worse. The risks are clearly now to longer and more-persistent bottlenecks, and thus to higher inflation.

US inflation in September came in at 5.4%, well above the Fed’s 2% target. Even the Fed’s preferred measure of inflation — the core personal consumption expenditures price index — which excludes food and energy costs came in at 3.6% from a year ago, the highest since May 1991.

This bout of inflation isn’t transitory.

For one, the US government is planning more stimulus, which will heat up things even more. In fact, the Institute of International Finance (IIF), recently found that with strong US demand, US companies have been marking up prices faster than other countries.

And then, the world is deglobalising too. The previous way of bringing components from different parts of the world together and then shipping them to the other side of the world no longer works in a fractured world.

The thing to remember is that all these trends were already happening before the pandemic. We’ve had years of central bank stimulus and easy money. And then the US–China trade war and Trump tariffs, which are still in place. COVID has only accelerated them.

Of course, the longer this goes on, the more people will adapt and look for other solutions. They may order more in advance or look at local suppliers, even if they are more expensive.

And of course, there’s the role of expectations.

The Fed may be trying to downplay inflation to lower expectations.

Persistent high inflation doesn’t leave them much choice. They either increase interest rates or let inflation run unchecked for a while.

My money is on the latter. Governments benefit from inflation.

But my point is that by the time the Fed actually admits we have an inflation problem, it will be too late. All this inflation data is backward looking, it’s in the past.

With higher inflation and real interest rates at negatives, gold is looking very attractive…and so is Bitcoin [BTC].

Best,

Selva Freigedo Signature

Selva Freigedo,
For The Rum Rebellion

PS: The Rum Rebellion is a fantastic place to start your investment journey. We talk about the big trends driving the Australian Economy. Learn all about it here.


Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.


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