By Benjamin Genauer
As the secular holiday season approaches, more and more people flock to stores and malls to buy gifts for their loved ones. As this hunt begins, consumers will find that they are being met with unusual circumstances that limit their abilities to purchase what they desire. These circumstances include a global shipping crisis which, in turn, leads to supply shortages; causing difficulties for both importers and exporters trying to bring in products.
These circumstances are multifaceted and there are countless factors that led to this outcome. That being said, I would like to look into the most pressing of factors. One major factor that led to this point is, of course, the global pandemic. As the world fell to a standstill, so did most industries, including maritime shipping companies. To deal with decreased demand for their vessels, many companies made the decision to scrap their ships instead of paying for docking and maintenance. The consequences of this decision became clear when consumer demand for products raged back to its pre-pandemic self and more so. This led to there being a shortage of ships to accommodate the increasing demand. Since the demand is high and the supply is low, basic economics tells us that the price for the shipping should be high, and that’s exactly the case.
Currently, the cost to ship a container from the port of Ningbo-Zhoushan to the port of Los Angeles (both of which are some of the busiest ports in the world) costs around $8,000 compared to around $2,000 before the pandemic. This totals to a shocking 300% increase! One might not think that freight costs are relevant, but these costs will undoubtedly make their way into the prices of everyday products (including those holiday gifts mentioned before). This, coupled with the fact that the Los Angeles port is struggling to accommodate the new surge of ships heading for its shores, has led to serious delays in shipping and supply (this congestion is the more potent cause of supply and demand discrepancies). For both stores and consumers, this means increased prices and trouble keeping products on the floor. As dire as this may seem, there is resolution in sight.
President Biden has introduced a plan to keep the port of Los Angeles (LA) open 24/7 to alleviate the heavy congestion. Moreover, land-based shipping companies have promised to get containers out of the port at a quicker rate. Although these changes will ease bottle necks, a main issue affecting these ports are lack of employees to operate them efficiently. With there being a lack of human capital and a much higher volume of containers coming into the ports, there simply aren’t enough employees to handle the increased volume. Lastly, it is important to note that this congestion is not unique to the LA port but rather a serious condition at ports around the globe.
All in all, there will be significant price changes to consumer products around the world, leaving many in difficult situations, and not just for the holiday season. Especially as inflation rises and the federal minimum wage stagnates, gifts for the holidays may be out of reach for some members of the working class.