💵 🚢 🌍 $200 billion of cargo is not reaching its final destination on time, disrupting a "just-in-time world and potentially > goods inflation.

🔶️ The amount of cargo passing through the Bab el-Mandeb strait, the southern entry point for the Red Sea, collapsed even further.

See the move in the last week.

🔶️ The amount of cargo passing through the Suez Canal, the northern entry point for the Red Sea, also keeps falling.

Again, see the last week.

🔶️ The reduction of cargo passing through the Panama Canal is unrelated but contributes to the overall problem.

🔶️ This is due to the low water levels on Lake Gatun.

🔶️ It is estimated that some $200 billion of goods worldwide have been diverted or are delayed.

🔶️ Eventually, all these goods will make it to their final destinations, but they will be late.

🔶️ Only some of these goods are final consumer items that will go directly to the shelves. The rest are parts and supplies for other manufacturing processes.

🔶️ Since we live in a just-in-time world, you can only finish your product if you have all the parts or supplies delivered on time or have extras in inventory (which is largely not the case due to just-in-time).

🔶️ The goods inflation in 2020/2021 was not due to a lack of goods over demand. It was about the goods, or stuff, being in the wrong places at the wrong time, delaying the creation of the final product. Since many goods have inelasticity, meaning you will pay up to get them, we saw a spurt of goods inflation, contributing to 9% YoY CPI in the US by June 2022.

🔶️ So, how many of the shipping issues noted above will lead to stuff being in the wrong place, disrupting the just-in-time world’s operations? And how much will people be willing to pay for available goods that they need immediately?

🔶️ My answer is enough to keep inflation “sticky” well above 2% and even above 3% and frustrate Wall Street’s hopes/plans for many rate cuts in 2024.

https://portwatch.imf.org/

📎 Jim Blanco