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Supply chain bottlenecks likely to boost future inflation

Recent shipping data shows why prices are rising

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Photo (c) the_burtons - Getty Images
Official inflation measurements don’t always capture how fast prices are rising for the average consumer or show what forces are driving prices higher. A recent report from the International Houseware Shippers Association (IHSA) paints a clear picture.

Not only are there delays in shipping products from foreign factories to U.S. distribution centers, but the cost of moving goods across the ocean has skyrocketed. These costs are beginning to show up in prices that consumers pay.

The IHSA says container spot rates in the September to October period of 2020 ranged from $3,900 to $$5,000 per 40-foot container. During the same period this year, the cost surged by 300%, to $17,000 to $20,000.

If a distributor or merchant wants to expedite the shipping of products, they have to pay even more. To speed up a certain shipment, shippers must pay an extra $1,800 to $3,500 per container. To guarantee space for a container, shippers must pay an additional $2,500 to $8,000 per container.

Things inside containers will cost more

Those extra charges make the things inside the container cost more. Extra costs may be absorbed by various players along the supply chain, but it’s clear that consumers are paying at least some of the extra cost.

In September, the Labor Department’s Consumer Price Index (CPI) rose 5.4% year-over-year, gaining 0.4% in September alone. The cost of new vehicles rose by 8.7%, and apparel, mostly produced overseas, added to previous gains by 3.4%.

The bottlenecks at shipping harbors that delay the movement of goods create artificial shortages, adding to inflationary pressures. The IHSA reports that the lead time for shipping to delivery last month was up 275% over 2019.

$100 million in unfilled orders

When the organization reported its third quarter earnings this week, toymaker Hasbro said there were $100 million in orders that could not be filled during the July through September period. The company said the orders would eventually be filled in the current quarter, but consumers are the ones having to wait, even if they don’t end up spending more.

Leana Salamah, vice president of the International Housewares Association (IHA), says the clogged supply chain is “contributing to inventory shortages, but it is also a major factor in the inflation conversation, as these kinds of hikes in cost to bring products to the U.S. cannot possibly be absorbed by the suppliers and retailers alone - prices will have to go up.”

In September, the IHA reported that port congestion was going from bad to worse. To alleviate some of the pressure, the association said carriers plan to increase capacity from Asia to the U.S. West Coast by 22%, creating the potential for even more bottlenecks.

Industry analysts say the bottlenecks have been caused by a huge increase in demand for all types of products as the COVID-19 pandemic begins to fade. The IHA expects the additional demand to extend into the first quarter of next year.

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