New ShipSmart Report: The Effect Of The Covid-19 Pandemic On Logistics And The Economy

In assessing the impact of the pandemic, one should not ignore the international logistics and shipping industry. Shipping plays a significant role in transporting more than 80% of goods in global trade. UNCTAD estimates that maritime transport handles over 80% of global merchandise trade by volume and more than 70% by value. With this in mind, the impact of the pandemic in the economy and, more recently, the after-effects such as container and chip shortages have disrupted transport networks and supply chains, considerably destabilizing world trade and economic activity.

In China, the lockdowns early last year caused a dip in materials and exports of products like computer chips. Declines in imports from China to the US caused significant supply chain disruptions for US producers. More so, as restrictions eased in certain countries, there was a great bottle-neck at the ports. The effects on the economy were felt in various industries and manifested in many ways: raw materials shortage, lead time issues, port closures and reduced working hours, labor shortages, and transport capacity shortages.

In mid-2020, after restrictions had ended, there was a significant spike in consumer demand and ships running behind schedule due to delays at the ports left without emptying their containers. The Suez Canal blockage further exacerbated the situation and has had many ripple effects. There has been an oscillation in demand for shipping containers. Nevertheless, the recovery has been slow. For example, a production plant in Italy making light commercial vehicles shut down temporarily due to a shortage of semiconductors.

Declines in commercial truck production due to lower supplies of computer chips are not just a factor in Italy but also across the globe. Vehicle makers project over a $200 billion loss in sales this year, with the production of 7.7 million vehicles lost to chip shortage. After the lockdown, demand skyrocketed, freight companies with a limited workforce and a limited supply of commercial trucks were left to handle the surge in production. Shipping costs and delivery times soared as retail companies frenzied over freight services and products. Anastassia Mayer, Logistics Director at Ship Smart, one of the nation's largest shipping companies specializing in small moves, says "While U.S. freight companies have done a fantastic job with the hand dealt, reducing delivery times depends on many factors outside of the industry's control."

While the long-term implications of the covid-19 pandemic may not be well known now, it is likely that the effects on logistics may be challenging for many people and many sectors. However, the ripple effects in the short run may sort as expectations adjust accordingly. Companies that had prior preparedness expecting minor disruptions could not avoid the effects of the oscillation in the supply chain entirely.

On the consumer front, consumer prices have been rising, indicating rising inflation. The inflation rate depends on the aggregate supply and aggregate demand within the economy. Labor market conditions will indicate supply, whereas the GDP data will represent demand.

Many companies have been rushing to procure more raw materials and labor; however, availability is limited. The surge in demand has resulted in consumer inflation, contributing to rising food prices and gasoline (energy). However, professional forecasters agree that the current spike in consumer prices is transitory. Many investors are expecting low inflation moving forward, given five-year forward positions.

In his speech, "Monetary Policy In The Time of Covid-19", US Federal Reserve Chair and Jerome Powell highlight what may lift inflation.

Employment gains. With a significant part of the population in long-term unemployment, labor force recovery is still well behind the rest of the labor market. However, many of the impeding factors holding back job seekers are easing up, such as vaccinations, school reopening, and enhanced unemployment benefits.

Increased inflation. However, several factors, if monitored carefully, may mitigate the figures.

- Price increases for particular items do not capture broad-based inflation pressures.

- There is a price moderation of some goods and services such as used cars.

- Wage increases show consistent inflation over time.

- Long-term inflation expectation pegged at 2 percent.

- Other factors such as technology and globalization maintaining price stability.

While economists expect inflation indicators to stabilize soon, most agree that the recovery of the U.S. shipping and moving industries will be slow.

 

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