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  • April 17, 2022 3:55 PM | Anonymous

    5 Million American Men Missing From US Workforce

    Authored by Angelo Paca

    The U.S job market in the last 2 years has been an impact topic in the economy due to the recession caused by the coronavirus. Thousands of people were dismissed from their jobs, leaving many with no source of income. After government’s efforts to bring employment back to optimal level, the bureau of labor statistics concluded that more people were unwilling to return to their jobs for multiple reasons. 

    Employment Rate for Males Ages 25-54 - Seasonally Adjusted


    The price-age male employed rate averaged 93.8% in 1950s and ‘60s. According to the U.S Bureau Labor Statistics, the numbers dropped to 86.5 in February of 2020. Now, it is estimated that three-quarters of non-employed prime-age men are not in the labor force. They are not engaged in procuring work for different reasons: Less educated men have now less opportunities to find jobs, health problems mainly due to opioid epidemic and many ranging from changing marriage prospects to increased reliance of government’s disability insurance programs.

    During this critical moment in the US economy, the government is encouraging men to return to the workforce, even those with less education. The economy needs more people working because national production level must rise amid the post pandemic recession coupled with the Russian invasion of Ukraine. The US economy has to adapt to the new reality and the only way to recuperate from the crisis is by investing in training opportunities outside of traditional 4-year degrees in an effort to entice more men to reenter the workforce.

    Source: https://www.bloomberg.com/news/articles/2022-04-11/prime-age-male-employment-remains-below-historical-levels


  • February 13, 2022 2:26 PM | Anonymous

    To Wait or not to wait, that is the question - Housing Market

    Authored by Taylor Merrell

    The housing market is expected to cool off this year after record breaking sales in 2021. Nicole Friedman from the Wall Street Journal says that “the U.S. housing market reached a 15 year high with 6.1 million just last year, in 2021”. While they are predicting the beginning months of 2022 to remain high, it is also expected that the housing market will start to come back down in the later months. This leaves home buyers pondering on whether to buy now or wait till prices come down. However, those that wait it out will likely pay more with higher interest rates.

    According to NAR, “the median existing-home price in 2021 rose to a record $346,900, up 16.9% from 2020.” The low mortgage rates in 2021 was a key factor in the increase in housing demand. The work from home trend is another key factor in the surge in housing demand. During to the height of the pandemic in 2020 many people were saving more money and working from home. This resulted in employees and employers being accustomed to the work from home concept knowing that there was no change in productivity. As many employers greenlighted working from home after the quarantine, people began to search for larger homes further from their offices.

    Jeff Tucker, senior economist at Zillow Inc., says that limited inventory and impending borrowing rates increases are what is causing the frenzy. There is a lack of homes to buy because of the market rates going up and fear of not finding a home at a good price point. The average 30-year-fixed mortage rate was 3.69% as of Feb 10, 2022. This is the highest level since March 2020. However, it’s important to note that interest rates are still at historical low levels.

    30-Year Fixed Mortgage Rates in the US
    Not Seasonally Adjusted


    Source: FRED

    Experts are expecting the housing market to soften later this year as more supply alleviates the current shortage. Nicole Friedman talks about how the number of homes currently under construction is at a multimillion-dollar high. There are hopes that once more homes are completed this upcoming year, it could help with the supply shortage and encourage more current homeowners to be willing to sell.

    Sources:

    https://fred.stlouisfed.org/series/ASPUS

    https://www.wsj.com/articles/u-s-existing-home-sales-reached-a-15-year-high-of-6-1-million-last-year-11642691655

    https://www.wsj.com/articles/mortgage-rates-hit-highest-levels-since-spring-2020-11641513773?mod=article_inline

    Edited by Ben Gonzalez

  • February 13, 2022 12:35 PM | Anonymous

    America’s addiction to coffee is getting more expensive

    Authored by Caleb Godard

    America’s addiction to coffee is getting more expensive. In Jan 2021 coffee bean futures traded at $1.30/lb, but increased 76% by the end of the year, the biggest increase in over a decade. There is little indication this change is due to increases in demand. In fact, while supermarket coffee sales grew by $1B in 2020, major coffee chain sales dropped by over $4B since. If the price increases aren’t due to increases in demand, then they are likely due to supply issues. So what’s new? Let’s dig deeper to find the root cause of supply issues in the coffee bean market.

    Coffee Prices ($/lb)


    Let’s first establish that some of the increase in coffee bean prices were due to labor shortages and increasing energy prices. However, part of the reason for the increased price of coffee beans recently is last year’s devastating frost in Brazil, the world’s biggest coffee bean producer. Guilherme Gerardo Rocha, a Brazilian coffee bean farmer, said that “in the 54 years I have been growing coffee since taking over the family farm from my father this is the most intense frost I have ever seen, we have always seen sporadic frosts but up until now the impact was always minor.” The frost is estimated to reduce Brazil’s coffee bean output by 16 million pounds in 2022.

    Another key factor is the surge in shipping rates. Coffee beans are sensitive to moisture and are shipped in woven bags made from natural fiber, which allows for air circulation. The bags of coffee are loaded and shipped in containers, in contrast to commodities such as grains which are transported in bulk carriers. The shortage of containers since the start of the pandemic have impacted many goods (ie consumer goods, apparel, manufacturing parts) imported and exported in the US, including coffee beans. Therefore, transport costs played a large role in the increased price of coffee beans.


    Workers load 60-kg jute bags of coffee beans for export onto a container in Santos, Brazil, December 10, 2015.

    REUTERS/Paulo Whitaker

    The head coffee trader for Eisa Intergricola, Carlos Santana, said that "it is almost not economical to use this route (to the USA) right now. The ports in the U.S. are full, shipping companies do not want to take more cargoes to there, so they charge more. Prices are more than three times higher than they were before the pandemic."

    Sources:

    https://www.wsj.com/articles/coffee-prices-climb-pushed-up-by-bad-weather-and-supply-chain-woes-11643669987

    https://www.reuters.com/business/environment/retail-coffee-prices-climb-frost-freight-costs-bite-2021-08-06/

    https://www.wsj.com/articles/coffee-jolt-gets-pricier-as-costs-of-beans-labor-transport-rise-11628775001

    https://www.wsj.com/articles/coffee-prices-soar-after-bad-harvests-and-insatiable-demand-11626093703

    https://www.gcrmag.com/brazil-frost/

    https://www.macrotrends.net/charts/commodities

    Edited by Ben Gonzalez

  • November 02, 2021 8:59 PM | Anonymous

    What Historically High Home-Prices Mean For You

    Authored by Reilly Radke

    For those thinking of buying a new home anytime soon, you might want to reconsider. Reports from Wall Street Journal reporter, Nicole Friedman, reveal the S&P CoreLogic Case-Shiller National Home Price Index saw a 19.8% increase since the year that ended in August. The jump in growth is the highest annual rate of price growth since the index’s creation in 1987. Friedman claims prices have risen sharply due to sharp increases in demand, induced by households looking for more space to work from home and a new flexibility to move farther away from their offices.

    The Case-Shiller index reports on a two-month delay, with most recent prices reflecting purchases made in July and August. According to the National Association of Realtors, the median existing-home sales price in September increased 13.3% from last year to $352,800. In addition, Freddie Mac reported that as of Thursday the average rate on a 30-year-fixed-rate mortgage rose to 3.09%.

    Case-Shiller Index - Average Home Prices


    Similarly, Friedman included a report released by the National Association of Realtors, showing that home sales rose 7% in September from the prior month to a seasonally adjusted annual rate of 6.29 million. The market is so hot that the average duration a house was on the market in September was 17 days, with many selling above their listing price.

    Justin Lahart, another reporter from the Wall Street Journal, believes that until more homes become available, the housing market will remain strong even through a season that is usually slower for the market. Lahart states that real-estate agents, “might be busier still, if there were more houses to sell. At September’s selling pace, there were only 2.4 months of homes on the market. That compares with an average month’s supply of 3.9 in 2019.”

    As a result of a lack in housing supply, building activity has increased. Although, home-building fell 1.6% in September from August as a result of material delays and labor shortages. Residential permits, a first step when setting up for future home construction,  fell 7.7%.

    Parker Young, president of Straub Construction, details frustrations the construction industry is facing currently. Young states that after storms in Texas earlier this year he had to find an alternate for insulation material as it became difficult to find petroleum-derived roof insulation boards. The switch cost him about $20,000 for two apartment building projects. If he had waited for the previous material to ship, it would have set the 14-month projects back six to nine months.

    Tony Rader, vice president of National Roofing Partners located in Texas, is experiencing similar supply-chain issues. As a result of continuous blockage of ships at major U.S. ports, Rader explains, “We’re just concerned that this is not going to get any better right now.”

    Additional consequences that lie behind the rise in home-price growth and supply/demand imbalance are reflected in the proportion of first-time buyers decreasing by 28%: its lowest level since July 2015. Other reports made by Orla McCaffrey from the Wall Street Journal outline calculations made by the Atlanta Fed that measure affordability using a three-month average of median home prices and median household incomes. The Atlanta Fed stated that in July, median home prices were up 23% from a year before and median incomes were up 3%.

    Currently, the median American household would have to forego 32.1% of its income on mortgage payments on a median-income priced home. To add, higher prices are requiring larger loans, which forces buyers to accept years of larger monthly mortgage payments.

    Nicole Freidman claims that even though mortgage applications rose 8% in September, the average rate for a 30-year fixed-rate mortgage has increased enough to turn buyers off. Friedman believes the increase in home sales can be explained by the fact that homes usually go under contract a month or two before the contract closes. Thus, September figures most likely reflect purchases made in August or July when mortgage rates were lower.

    Several reports mentioned above have concluded that it could take years before supply and demand equalize, warning that we could see high home-prices for a while. Freidman also adds that the pace of growth is slowing, and price cuts are becoming increasingly common.

    Sources

    • https://fred.stlouisfed.org/series/CSUSHPISA#0
    • https://www.wsj.com/articles/u-s-home-sales-jumped-7-in-september-11634825367
    • https://www.wsj.com/articles/home-price-growth-holds-at-record-in-august-11635253603
    • https://www.wsj.com/articles/americas-housing-boom-will-keep-builders-and-agents-busy-11634836705?mod=article_relatedinline
    • https://www.wsj.com/articles/mortgage-payments-havent-been-this-unaffordable-since-2008-11633253401?mod=article_relatedinline
    • https://www.wsj.com/articles/builders-hunt-for-alternatives-to-materials-in-short-supply-11633512601?mod=article_relatedinline
  • November 02, 2021 8:40 PM | Anonymous

    Rising food prices hurting Americans, but not as much as folks abroad

    Authored by Eric Przybyl

    All around the world, food prices are going up, as with almost everything. These are all obviously due to supply chain issues related to the COVID 19 pandemic. However, food price increases are possibly where we could see the most grave effects of the pandemic supply chain disruption, as the world’s median income is under $10,000. This means that even a small change in food prices could hurt a large part of the world's population. This is what is addressed in an article by Fox Business entitled, “Food Prices Will Go Up ‘Tremendously’: Billionaire Supermarket Owner”. This claim was made by John Catsimatidis, the owner of Gristedes and D’Agostino Foods, who said that food prices in the US will go up by 10% in the next 60 days. The US has a lot of data on food prices that could be used to postulate about the current situation of the world, but it should be noted that the effects will be felt differently in different regions due to differences in wealth, government intervention, and supply chains. Between February and March 2020, the Personal Consumption Expenditures for food in the country jumped around 23% from $104.6 billion to $128.4 billion, by far the largest monthly jump in food prices since the data began. The next month expenditure dropped to $112.9 billion, but this was still more than the long term trend, and the monthly rate of change in expenditure since has also been higher than the long term trend.

    Personal Consumption Expenditures: Food (Billions of Dollars)


    Source: FRED

    While these effects of government mandated shutdowns across the supply chain will put pressure on households, the jump in food prices actually reversed a downward trend whereas Americans were spending a smaller and smaller proportion of their income on food. From 1960 to 2021, this proportion went from 17% to 9.9%. This is due mostly to an increase in average real income, but also a historically moderate average food CPI inflation of 3.1%, slightly outpacing the average yearly inflation from 1920-2021 of 2.63%. Furthermore, only 1.5% of the US could not afford a healthy diet in 2019, a staggeringly low number compared to figures like 92% in Niger. Therefore, while this increase in price will have an effect on Americans’ disposable incomes, the largest effects of this food supply issue will affect the middle to lower income countries. It is thus important to monitor food prices and supply at home and abroad to determine the true effects of the COVID 19 pandemic on food supply and allocate resources accordingly.

    Sources:

    • https://www.foxbusiness.com/money/food-prices-up-tremendously-billionaire-supermarket-owner
    • https://ourworldindata.org/food-prices
    • https://fred.stlouisfed.org/series/DFXARC1M027SBEA
    • https://news.gallup.com/poll/166211/worldwide-median-household-income-000.aspx
    • https://www.ers.usda.gov/amber-waves/2020/november/average-share-of-income-spent-on-food-in-the-united-states-remained-relatively-steady-from-2000-to-2019/
    • https://www.in2013dollars.com/Food/price-inflation


  • November 02, 2021 8:22 PM | Anonymous

    The Fantasy of Home Ownership

    Authored by Tareen Kaza

    Owning a home may be a dream for the Gen-Z generation as Millennials are barely able to keep up with the prices of homes skyrocketing. Home prices have eerily soared in a similar pattern to what occurred prior to the financial crisis of 2008. The American Action Forum notes a trend in 2021 that is far different than the years before, “Between 2014 and 2020 the United States saw a steady increase in house prices of roughly five percent each month when compared to that same month the year before.” However, in 2021, the house prices have increased from about 12-16%. Why the drastic change in 2021? The Covid-19 pandemic can be credited to this.

    Median Sales Price of Houses Sold for the United States


    The trend of working from home has exacerbated this demand. Remote work as well as a social distancing precaution has inspired a stress for homes in the suburbs. Another reason for the demand of homes is low mortgage rates. Unprecedented low mortgage rates have caused a huge demand for housing. The Times stated that “Mortgage and refinance rates have been hovering near 3% for several months, which is low compared to historical mortgage rates.” This is great for current homeowners as they are empowered to refinance their home at a decreased rate than before. One would expect this to be great news for prospective homeowners, yet homebuyers are facing much difficulty on purchasing a home.

    The housing supply has not adjusted for this increase in demand. The pandemic has caused a housing shortage due to the high cost of construction as well as a decrease in the labor. Another negative impact to the housing supply is the cost of materials. The burst in lumber prices have added about “$36,000 to the cost of building a new home.” The National Association of Realtors declared that “the inventory of homes for sale in January 2021 fell nearly 26 percent compared with January 2020.” Hopeful homebuyers are noticing this rise in home prices and are at a loss of what their next step should be. The online brokerage Redfin Corp noted that about “72 houses in metro Austin have sold for $300,000 or more above their asking price in 2021.”

    Many are optimistic that this could be the peak to the overwhelming rise in prices, but Edward Pinto from the American Enterprise Institute, disagrees stating that “prices will rise about 10% in 2022.” With this information one would expect that the sale of homes may decrease due to the increase in cost. Cost is a formidable barrier; wages haven’t increased enough to accommodate a purchase of a home. However, this can be overcome with the low mortgage rates. Homes will continue to sell rapidly because of the rise in demand and the constricted housing supply will support the inflated price of a home. This situation creates a seller’s market, with buyers at each other’s throat outbidding the other. Few will have the privilege of making it out on the other side with a new home. An additional barrier is the competitiveness of being approved for a mortgage loan. The market will continue to favor home sellers and the pandemic will continue to heighten that.

    The pandemic is far from over with the introduction of the Delta variant. Labor markets will continue to be affected, impacting the supply of houses, forecasting a continuous rise in home prices. The Federal Reserve’s data shows that the median sales price of homes sold in the US is rising and won’t be stopping any time soon. The conditions for owning a home are tough and getting more perilous with each passing year. Homebuyers can prepare by meticulously saving and getting preapproved for a mortgage loan prior to even starting the hunt for their future home, but the data shows this may not be enough.

    Sources:

    • https://time.com/nextadvisor/mortgages/monthly-mortgage-forecast-and-predictions/
    • https://www.americanactionforum.org/insight/understanding-the-national-increase-in-house-prices/
    • https://www.bloomberg.com/news/articles/2021-06-10/real-estate-prices-are-soaring-but-there-s-no-sign-of-a-housing-bubble
    • https://fred.stlouisfed.org/series/MSPUS#0


  • November 02, 2021 8:04 PM | Anonymous

    Wage Increases Amid High Inflation

    Authored by Trinity Johnson

    David Harrison from the Wall Street Journal reports on the stark increase in U.S. prices and wages alike. It’s no secret that inflation has been steadily increasing for the past year. After the economy opened back up, supply stayed static while pent up demand was released. The result was rapid inflation that can be observed in nearly every accredited price index. For example, the Fed’s personal-consumption-expenditures price index rose 4.4 points in September from last year. Consumer confidence, measured by the University of Michigan Consumer Sentiment Index, has remained below the normalized value of 100 since March 2020. This summer, the index hung in the 80’s. In September and October, the index remained around 72, indicating that consumer confidence is still on the decline. The employment-cost index, which includes wages and benefits, rose 1.3% from the second quarter to the third according to data from the Labor Department. The Fed is stuck in a difficult position. If they continue to stimulate the economy with benefits, inflation may continue to surge. If the government pulls back benefits, many analysts worry that it could frustrate economic recovery and push the U.S. back into a recession.

    Data from the U.S. Bureau of Economic Analysis shows that wages are increasing. The BEA’s measure of gross domestic income shows an increase in wages these past few months at the highest rate in decades. The centered moving average of this increase for the end of 2020 and beginning of 2021 is 2.64%. For comparison, the average percent change in gross domestic income is 0.95% since 2000. This increase is mostly due to government benefits.

    Gross Domestic Income: Three Quarter Centered Moving Average

    Percent, Quarterly, Adjusted for Seasonality


    As the Fed debates scaling back government benefits even more, this indicator could be rather worrisome for the economy. Additionally, the increase in wages is partially because of the lower labor participation rate. “About 62% of American adults are either working or looking for work, the lowest rate since the 1970s” (WSJ). Higher wages may be offset when the labor participation rate begins to rise again. Without proper reform, this increase in wages will likely level out. Economic recovery could be jeopardized if inflation continues to rise sharply and if wage increases start to slow down. The Fed has many things to consider during its next meeting, particularly when to begin raising interest rates. Expectations are that the Fed will fight the trend of higher prices by beginning to raise interest rates next year, about six months sooner than the last Federal Reserve forecast, according to market experts.

    Sources:

    • https://fred.stlouisfed.org/series/A4102C1Q027SBEA
    • https://www.wsj.com/articles/consumer-spending-personal-income-inflation-september-2021-11635449959
    • http://www.sca.isr.umich.edu/


  • September 30, 2021 9:18 PM | Anonymous

    Exxon and Other Oil Companies Propose Climate-Capture Initiatives

    Authored by Eric Przybyl

    One of the big issues facing the world right now is climate change. And while there has been a lot of discourse surrounding this issue, there seems to have been little action taken, which is likely due to the disagreement on how to go about solving the problem. Even though carbon emissions have decreased 14% since 2007 in the USA, it is not a stretch to say that the complete decarbonization of the grid would be extremely costly and unrealistic.

    USA Total CO2 Emissions (Million Metric Tons)


    Source: Federal Reserve Economic Data

    According to the University Corporation for Atmospheric Research, the earth’s temperature has already increased 0.6 degrees celsius from pre-industrial averages, and it is likely to increase at least another degree in the next century even with extreme decarbonization efforts, so it is clear that different approaches must be looked at.  A relatively new solution that has been gaining more recognition among corporations and the public alike is carbon capture, utilization, and storage (CCUS), which is the ability to capture and store carbon dioxide from the source before it can enter the atmosphere.

    Controversially, though, some of the biggest funders of this method of fighting climate change are big oil companies such as Exxon. This is what is talked about in David Blackmon’s piece for Forbes magazine entitled Exxon-Led Carbon Capture Project is Key to Sustained Economic Growth. Here Blackmon describes the efforts of Exxon and 10 other oil companies in proposing a $100 billion CCUS facility centered on the Houston Area. He argues that projects like this, which Sylvester Turner hopes can help make “Houston the carbon capture capital of the world,” are the key to maintaining economic growth while combating climate change. This is in response to criticism by climate activists who say that this initiative is just an excuse to keep polluting, and that the true goal should be complete decarbonization and negative economic growth.

    If this technology is to be successful, though, it is necessary that it reaches scale quickly, as we currently emit around 33 billion tons of CO2 per year worldwide, where our current carbon capture capacity is around 40 million tons. This is crucial for both the health of the planet and the economy, as, if successful, it could help eliminate the ultimatum of choosing to hurt the economy while helping the planet and vice versa, and could help us have sustained economic growth while averting the worst effects of climate change.

    Sources
    • https://www.forbes.com/sites/davidblackmon/2021/09/18/exxon-led-carbon-capture-project-is-key-to-sustained-us-economic-growth/?sh=6bfe64da9232
    • https://scied.ucar.edu/learning-zone/climate-change-impacts/predictions-future-global-climate#:~:text=Climate%20models%20predict%20that%20Earth's,gas%20levels%20continue%20to%20rise.
    • https://www.iea.org/reports/global-energy-review-2021/co2-emissions


  • September 30, 2021 8:44 PM | Anonymous

    Job Openings Increase While More Workers Are Having to Work Overtime

    Authored by Syed Ali

    Companies are relying on overtime to compensate for labor shortages. Existing workers are having to come in early, stay late, and work extra shifts in order to keep operations running. While working overtime helps employees earn bigger paychecks, it also causes employees to have higher stress and leads to burnout. Employers and researchers say that the need to work overtime is leading to a large increase in resignations across the entire country.

    Average Weekly Overtime Hours of Production and Nonsupervisory Employees, Manufacturing

    Source: Federal Reserve

    The number of open U.S. positions increased to a record 10.9 million in July. Manufacturing employees worked an average of 4.2 hours of overtime per week last month. This is up from 2.8 hours in April 2020 and 3.8 extra hours in August 2020. More workers are quitting their jobs today than at any moment within the last two decades in the U.S. This will only continue to put more pressure on remaining employees. As the economy continues to reopen, it is going to get more difficult for employers to find potential employees due to the extended overtime. Some workers are willing to walk away due to frustrations caused by the expectations of overtime.

    Total Unfilled Job Vacancies for the United States, Persons, Monthly, Seasonally Adjusted

    Source: Federal Reserve

    The extra overtime pay is also affecting employers. This, in turn is increasing expenses and decreasing profit margins, while at the same time productivity is decreasing as well. As this continues to go on, it can be expected that more employees will walk away from their jobs due to continued stress and burn out. While overtime can work as a short-term solution, it only hurts in the long run by reducing productivity and increasing fatigue. As demand continues to increase, employers will have to continue to raise their wages to attract new employees or risk their current employees walking away.

    Source

    https://www.wsj.com/articles/companies-use-overtime-to-solve-worker-shortages-that-may-cost-them-more-workers-11631937827

  • September 30, 2021 8:32 PM | Anonymous

    Container-Ship Charter Rates at Historical Highs

    Authored by Reilly Radke

    For the past few months, consumers have endured rising prices of goods and looking at the historically high charter rates for container-ships; the two are undeniably interchangeable. Greg Miller, Senior Editor for the American Shipper, reported in a recent article that short-term container-ship charter rates are reaching as high as $200,000 per day. Euroseas, a container-ship company based in Greece, announced that its container-ship Synergy Oakland achieved one of the highest short-term charter rates in the industry. The Synergy Oakland was built in 2009, garnering a capacity of 4,250-twenty-foot-equivalent units (TEU’s), and starting in the second half of October will go for $195,000-$202,000 a day to rent for 60-85 days. Miller shares a report given by data provider, VesslesValue, revealing that a quarter of the Synergy Oakland’s $71.17 million resale could be paid off in only three months with its high charter rate. For context, Miller compares the ability to pay off a quarter of its resale in such a short period to be, “the equivalent of a building owner paying off the entire mortgage with rent income from a single year.”

    With data taken from a fundamental research platform, Ycharts, the graph below illustrates that container-shipping rates have risen 2.40% within a week’s time and 402.0% from last year. A major financial crisis has not risen in the industry as lessees are still making sizable profits from cargo rates, also at an all-time high. Although, a senior market analyst at Alphaliner, Charles Mercier, stresses that the danger of a financial crisis is very possible if there is a “complete mismatch between super-expensive time-charter commitments on one hand and a falling freight-rate market on the other, with the liner shipping companies bleeding money and having no option but to renegotiate their charter agreements.” Financial crises in the past have developed for reasons such as these sky-rocket high rates seen today in the container sector, a similar narrative dated back to the 1637 Tulip Mania crash during the Dutch Golden Age.

    Container Shipping Rate for 8500 TEU Vessels (USD)


    Source: Ycharts research platform

    High charter rates aren’t just affecting those in the container sector, these rates have a major impact on the distribution prices of goods being transported and in turn, an even greater effect on consumers. Wall Street Journalist, Thomas Gryta, emphasizes the impact shipping rates have on consumers stating, “The cost of transporting goods is a component in every step in a company’s supply chain. The cost of shipping containers across the ocean is higher, truck drivers are in short supply, and gasoline is more expensive than many expected earlier this year.” Gryta added that companies are reporting shipping costs 10 times higher than historical costs the companies have endured, sometimes even exceeding the cost of their products. Companies are left with no other option but to raise prices on their products. Mark Zandi, chief economist at Moody’s Analytics, weighed in on our country’s rising inflation stating, “I think the inflationary pressures are being juiced by the surge in transportation costs.” To support his claim, Zandi adds that consumer prices have risen 5.3% in the past year and suggests that transportation costs are responsible for about 10% of the price increase.

    Will shipping costs decrease anytime soon? An article published by S&P Global Platts weighed in on the sector’s high rates and added that 6-12 month-time-charter rates for ships with a capacity of 8,500 TEUs have increased more than 425% from the prior year’s assessment. Charter durations have largely expanded to 2-4 years because of short-term rates, with even some liner companies more willing to buy ships instead of charting them. Platts also points out that these high rates could be partly due to both the unused and low inventory of ships. Last year’s idle was at 10% of global ship capacity compared to the current 2.5% in idle capacity. According to Miller, the lack of ship supply and spike in short-term rates could have been sparked by the switch from short-term to long-term rates, leaving those ships out of the market for years until their charter expires. London-based shipbroker Braemar ACM predicts that, “it is not until 2023, when the fleet is expected to expand by 8.5%, that charter earnings are expected to noticeably stabilize.” Given the information above, charter rates are not expected to decrease any time soon due to low ship capacity, meaning consumers won’t be seeing a decrease in goods for the same expected timeframe.

    Sources
    • https://www.freightwaves.com/news/container-sector-is-so-hot-that-ships-rent-for-200000day
    • https://www.wsj.com/articles/rising-shipping-costs-are-companies-latest-inflation-riddle-11631784602
    • https://www.spglobal.com/platts/en/market-insights/latest-news/shipping/080221-container-ship-long-term-charter-rates-climb-to-record-highs-amid-vessel-shortages
    • https://www.freightwaves.com/news/more-container-ships-score-astronomical-100000day-rates
    • https://ycharts.com/indicators/container_shipping_rate_for_8500_teu_vessels


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