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Hi Everyone,
With all the strange economic dynamics at play during this unique period in history, perhaps one of the most fascinating is the way that the pandemic is affecting the price to ship goods.
Shipping costs are very complex and depend on numerous variables, many of which are only known in retrospect, often months after the fact.
The factors that determine these expenses are also not public information, so any index purporting to show the cost of shipping should be taken with a pinch of salt.
Sufficed to say, graphs and headlines that show rapidly rising shipping costs might be a bit alarmist, but they also might not. We really have no way of knowing so soon. |
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Without being an expert on this subject, we can only try and piece together what's happening here, or what the long-term impact may be. Several have placed the blame not only on a lack of containers, but also that goods have been flowing in a more unidirectional way lately.
What's clear at this point is that ships traveling from China to the West, in particular, have seen a massive surge in pricing lately.
Here's one graph, pulled off Twitter this morning, which shows a popular shipping index where we can see prices going from a normal level of about $2,000 per container to about $8,000, with some suppliers even reporting prices as high as $12,000 or more. |
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| Even though some analysts have already claimed that these price spikes will likely be temporary thanks to the invisible hand, with the longer-than-usual Chinese New Year holiday coming up, things could certainly get worse before they get better. |
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Worrying confidence
So, shipping companies are going through a rough patch, but why should that worry me?
Well, at the moment, it seems that the shippers are eating the cost, which could have some sour affects on their bottom line, not that the bottom line has been a particular driver of share prices lately though.
The issue is that if this anomaly continues, these expenses will eventually be passed on to consumers. Obviously, this would mean higher prices on goods from China, which ultimately could end up spurring inflation.
What's worse, and I am aware of how ironic this sounds, are today's economic figures from the U.S. ... |
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So Americans who are able to have already started to spend some of that money they've been saving lately. Perhaps the editor at MarketWatch did get a bit carried away with this headline though, as we can see January's uptick doesn't bring us even close to the confidence levels of 2019.
It's more like a bounce off the lows at this point. |
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This is volatility
One has to wonder just how much the price fluctuations in global shipping lines have to do with the current volatility in global markets.
More specifically, if we calculate how much it costs to ship a container from China to Europe in bitcoin, the price has actually remained much more stable. A normal price per container in September-October would have been around 0.23 BTC, about the same as today.
Obviously, correlation does not equal causation, and I've yet to see any analyst stating that the price difference may be coming from a lack of confidence in the U.S. dollar on the part of Chinese shippers, but it is interesting to think about it from this angle.
People often cite bitcoin's volatility as a barrier to adoption, but I don't see anyone about to stop shipping goods because the pricing got wacky.
Wishing you an awesome afternoon/evening.
Best regards, |
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Mati Greenspan Analysis, Advisory, Money Management |
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