Why do we need to pay more for things!

On January 07th, 2021, I bought from staples a box of binder clips, medium size for $10.00, and just a couple of days ago, I bought the same boxed binder clips, medium size, for $12.79. Now, this product is constantly being offered at around $10.00 and sometimes below $10.00 for the past few years; however, now, we see a price increase of 27.90% in just a few months. I have asked many friends and business owners if they had noticed such increases with their supplies, and one electrician friend has informed me that the electric cable roll he had been buying for about $100 to $120 per roll is now trading $320. This sudden increase has something to do with the shortage of truck drives in the USA and Canada and the sailors in the Indian and Atlantic oceans. Someone might ask what truck drivers and ocean vessel sailors have to do with these price increases? Exactly, I will show you how in a few lines, the relationship between the two. The issue here is not just an increase in a box of binder clips or an electric wire roll; instead, the problem is with most of the products and services we are daily consuming or buying nowadays, even toilet papers are on the rise plus there is a shortage of items in the market.

Furthermore, how long do we have to face such prices increases? Are these increases are going to continue towards 2022, or would we see some cool down by next year? Answering these questions will be tricky because there is a huge gap between what has happened and what needs to should've been done to tackle this dilemma. In normal economies, we always see that such increases are temporary, then they would tend to reach an equilibrium of supply and demand for it to come back to normal. However, over the past two years, let us face it, we are not near any traditional economies. Supply is extremely short, the labour force is almost hibernating, and shipping cost has skyrocketed. For the first time in my life, I am witnessing the three major economic factors in the form of increased prices, shortage of supply and the demand is exceptionally high for the entire world and not just one region. So, what exactly is happening here? And why are these prices insanely high? Are we to see the same trend in 2022 and 2023? Or are we to see some sort of decrease in the coming months, and when exactly? And why is the shipping and ocean rates are now more than five times it used to be last year or the year before? And how does the buying power of the US and Canadian population affect the prices all over the world? To answer all of that, I will tell you a story about what is really going on to get you to understand the situation. 

One of the most important critical elements of this entire situation is ocean containers. Without ocean containers, we cannot have a proper supply chain management or JIT to have your car, clothes, household consumables or most of the items we enjoy every day readily available. Even if you say that we produce things locally, about 80% of what we use is being imported here from the vast manufacturing machinery to even binder clips, and 90% of the world's products are being shipped to us in containers via ocean vessels. For this reason, if we don't have ocean containers or the number of ocean containers is getting less, the entire world would run short, and demand would skyrocket to "the moon!" This shortage of ocean containers is the first string causing the price increase. Today we are facing a massive shortage of ocean containers in the global market, which led to a paralysis of the world's supply chains that, in appearance, has also suffered from the economic shutdowns across the world due to COVID-19 and variants. Where did all these containers go, and why are we seeing such dearth? In March 2020, and when the COVID-19 has gotten out of control, most of the East Asian markets started to pose major shutdowns on their borders and markets. Later on, in just a few months, more lockdowns followed in European and North American markets due to the same reason causing a significant paralysis in the ocean freight. At that time, no one was importing or exporting except for necessities, which also caused distress to most shipping companies. Let's just examine how the ocean world works to grasp how this major issue occurred! Usually, when vessels leave full from, let's say China to the USA, it reached there within 30 to 45 days where it has to berth and wait for a couple of days for it to be offloaded and then load some more for it to go back on route to its origin. Here we must explain that some economies such as the USA depend heavily on imports and tend to export less than it imports. For instance, when a vessel arrives at USA port, it mainly carries full containers and no empties, but when the vessel needs to go back, it has to take some empties back to its origin on board to maintain the supply of containers. For instance, we can say that 40% of what has been loaded is being resent back empty to Asia. Now back to March 2020, when things were not looking good, and panic was there, most of the ocean vessels were in a rush to offload their decks and not wait for empties since lockdowns were in effect each day the ship was being moored would mean more fees to pay; thus, most were going back empty resulting in much more congestion in the container yards such as what we are seeing happening right now in east-coast ports of the USA.

Nonetheless, in June 2020, China opened up its economy, and factories started producing once more, resulting in more supply and demand. This led to more containers being shipped. Now, remember when we said that all empties were dumped in western ports and not being brought back to China! Thus, the need to consume the Chinese inventory of empty containers and causing a price increase in just a few weeks due to containers' misplacing. We are not saying that containers are not being enough, but literally are being misplaced to meet current supply chain needs effectively. Let us explore one example here; a marble tile manufacturer used to ship a 20' standard container from China to the USA for $2,600 (USD $2,000) or less back in December 2019. In June 2020, the same manufacturer noticed that the prices escalated from $5,850 (USD $ 4,500) per container to $13,500 (USD $10,000) in October 2021. That is a 300% increase in just over two years.

Now let us talk about the North American demand and why it has not slowed a bit while the entire world faces major liquidity issues and economic challenges! The answer is simple, in March 2020 and April 2020, both Canada and USA started rolling out their emergency benefits and stimulus checks, causing an increase in demand for all items and thus the need for much more import and many more incoming containers to feed the already giant snowball of empty containers in North America. Of course, this led to an increase in imports and inflation at the same time while ocean prices were escalating every ten days. The sudden increase of demand, especially from the USA, on all Chinese products caused the local US ports to reach capacities and created major congestions when most USA ports were not made to house such enormous demand. On October 17th, 2021, there were about 80 ocean container carriers stranded near the LA coast carrying about $25 billion worth of products which is about 250,000 containers and no space or capacity to unload due to already congested ports resulted in vessels being held for at least two weeks to get a turn instead of the usual four days process. On October 13th, 2021, President Joe Bidon had asked the port of LA to work 24/7 instead of 8 hours shift in a desperate move to ease some congestion, but this was not enough. Adding insult to injury, when containers were unloaded, the shortage of truck drivers "BOOM!" was there waiting to cause much more delays in delivering the commodities and further driving increases in fees. To make things worse, shipping vessels started to obtain work based on bidding tenders in which whoever paid more got the service. Furthermore, due to COVID-19 restrictions and protocols, many sailors and ocean vessel operators were not allowed to come off-board due to fears of COVID-19 and lack of vaccinations. Thus, creating a shortage of operators and also causing ocean carriers to load more containers on board, leading to some significant accidents such as the recent 104 falling containers off the vessel near Victoria port.

Now, how long would this last? In my humble opinion, I believe reaching the equilibrium of demand vs. supply in ocean shipping would need to see the following being done:

1. More vessels need to load more empties on their way back to their origin gradually
2. Docking and mooring fees need to go down a little with the help and support of local governments,
3. Shipping companies need to hire more ocean vessel operators, and someone needs to advocate for their benefits and better working conditions, not to mention the case where one captain had died on board of one of the vessels where more than 12 nations refused to accept the corpse due to COVID-19 unprecedented protocols!

Once we see these three significant steps are being exercised, we could say that we should reach a closer target to equilibrium within three to four months, right after a cycle of two complete routes at least.

If you, the reader, think that other issues are causing these price hikes, please share your POV with me to learn more.

In my next article, I will need to bring to your attention the coming crises of "food security" and what we can read from hearing the news about the increases in energy cost, nitrogen fertilizers cost and shortages, meat prices, and the imminent change in crops for 2022!