West Coast Port Closures are another headache we don’t need!
The West Coast ports of the United States serve as vital gateways for international trade, facilitating the movement of goods and materials between Asia and North America. Any disruption to the operations of these ports can have significant consequences for container prices, logistics costs, supply chain bottlenecks, inflation, and the economy.
Just after container and trucking prices crashed, here we are with ships and containers starting to pile up with port closures in LA, Lon Beach, Seattle, and Oakland.
Prolonged West Coast port closures can lead to a shortage of available shipping containers, causing a surge in container prices. We could also see disruptions in the flow of goods, leading to significant increases in logistics costs. When ports are shut down or operating at reduced capacity, delays occur in unloading and loading cargo, which in turn slows down the movement of goods throughout the supply chain. This is just when companies are about to prepare for the fall and holiday sales.
This disruption causes additional expenses for companies, including demurrage charges, warehousing costs, and increased transportation expenses to reroute shipments. These will be passed on to consumers barely holding on.
West Coast port closures could create severe supply chain bottlenecks. With a substantial volume of goods typically passing through these ports, any disruption can have a cascading effect on the entire supply chain network. Delayed shipments and increased congestion at alternative ports can lead to a backlog of goods waiting to be transported, causing further disruptions at distribution centers, warehouses, and retail stores. The resulting bottlenecks can have far-reaching consequences, such as stockouts, reduced availability of goods, and diminished customer satisfaction. If this continues, we could see inflationary pressures build up again, making inflation more sticky.
The consequences of West Coast port closures could have a profound impact on the overall economy and even the Fed’s thinking on rates just when markets have ramped up the chatter of a pause. The pause is not warranted with such a threat to the economy. A pause would just damage the reputation of the Fed and create even more volatility and loss of confidence.
The risk of a pause is just too great with so much at stake, little clarity of the future (inflation), and still a large amount of liquidity left chasing “bull” runs.