What is causing the shortage of goods and workers? What should we do about it?
Topics covered include:
- How a tree pandemic killed billions of American Chestnut trees
- How a massive increase in demand has crippled the global supply, leading to an eight-fold increase in shipping costs
- Why there are so many job openings and people quitting their jobs
- Why the free market doesn’t work as well for child daycare
- How stimulus payments during the pandemic reduced poverty rates
- What is the lying flat movement
- How everything is in place for an extended period of high inflation even though the bond market still anticipates inflation will be transitory
- Why we should own real things and plan more downtime
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Welcome to Money For the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today is Episode 359, it’s titled Why Are There So Many Shortages?
The American Chestnut Tree
I recently read an essay by Kate Morgan, in which she described that in 1904, a forester at the Bronx Zoo noticed that the American chestnut trees at the zoo were developing strange, spotty, orange-yellow patches. It was a fungus. William A. Murrill examined it and published his findings a year later. By then, the disease had spread to New Jersey, Maryland, the District of Columbia, and Virginia. From 1904 to 1940, 3.5 billion American chestnut trees died. It wiped it out across the Eastern US.
Later, scientists at the US Department of Agriculture determined that the fungus arrived on ornamental Japanese chestnuts, imported to the US as early as 1876. At the beginning of the 20th Century, the chestnut was used for a key source of wood; timber, just using the American chestnut, was a multi-billion-dollar industry adjusted for inflation. The American chestnut is huge, fast-growing; typically, it’s rot-resistant. It could be milled into cabin logs, furniture, fence posts, railroad ties, and it matured in about 20 years. And of course, you have the actual chestnut itself, chestnuts roasting over an open fire. But here was the disease that came and wiped out billions of trees. And even today, they’ve not been able to restore the American chestnut. They’ve tried crossbreeding it with the Chinese chestnuts, with Japanese chestnuts, they’ve tried genetic modification, but it still hasn’t been restored.
In some ways, the COVID-19 pandemic has been just as devastating as the American chestnut tree blight. March 2020, the last time I flew, we were in Ohio, in Cincinnati. I was shocked to see the empty store shelves. So many products had been bought out. Then back in Arizona a few weeks later, it felt terrifying to go to the grocery store. We’ve learned to make personal risk assessments in the face of an unknown virus.
Container Ships and Goods Shortages
Today, I will be getting on an airplane for the first time since March 2020, flying to FinCon down in Austin. We’ve had vaccines, the economies are opening up, but they’re shortages. LaPriel and I are in the midst of a remodel in our house in Tucson. We recently ordered some tile that’s being sent from Italy, because they didn’t have any at the US warehouse; 10 weeks wait time. I’m assuming we will move back into our house in January, without kitchen tiles. It just won’t show up.
You can look across many, many different industries and see shortages. Here, locally, there’s no large soda cups at the local gas station. They’ve been out for weeks. There are stores in the UK where there’s no Diet Coke at all. There’s been a well-reported semiconductor shortage. Toyota has cut production in September by 40% because they couldn’t get enough parts for their cars. Where are all these things, these items that are missing?
RoxAnne Thomas is head of logistics at Gerber Plumbing Fixtures. She says her faucets, sinks, toilets are in Shanghai, some are in Vancouver, some are buried at a rail yard in Chicago. She says it’ll be a year and a half before things truly get back to normal. And that they’re constantly fighting this battle between how much to spend and how many containers can they get to get their goods from overseas. But it’s causing this supply chain crisis.
Well, there’s been a significant increase in the demand for goods. There are 25 million container ships moving cargo across the oceans. It takes 2-3 years to build a new one. In the LA and Long Beach ports, they’ve seen 860,000 inbound containers arrive, on average, each month in 2021. That’s 24% more than the typical monthly volume over the previous five years leading up to the pandemic.
Right now, there’s 65 ships at anchor in drift areas waiting to be unloaded; not enough workers, not enough slots. The average wait time to unload a ship is 8.7 days, 2.5 days longer than last month. We’ve seen panic ordering by retailers because if you don’t know if your stuff’s going to show up, you order more of it. And there’s also been more online shopping, which means more imports are coming. Imports from Asia have increased 36% year over year. China is the leading supplier of these imports to the US, but India has seen their exports to the US increase 76% year over year. Vietnam, a 52% increase.
There’s also been some spillover effects. In late March a cargo ship was stuck for 6 days in the Suez Canal, and 12% of the world’s trade goes through there. There have been shutdowns at Chinese ports due to COVID cases. There’s been freak typhoons that have disrupted shipping. There’s also been staff shortages, social distancing measures, which have made it more difficult for those that work at ports or warehouses. There’s been travel restrictions, which have made it more difficult for crews to get to container ships. All this is combined to dramatically increase the cost of shipping goods.
Prior to the pandemic, the cost to ship a 40-foot container from Asia to the US was about $2,000. Now, it’s $16,000. And if you want to pay a premium for on-time delivery, if you can get it, it’s $25,000.
Wade Miquelon, who’s the Chief Executive Officer at Jo-Ann Fabric, said “Sometimes the ocean freight is actually more expensive than the cost of the product.” They’re paying 10 times more now for shipping than they ever have. Then you have challenges with the rails system. Canadian wildfires disrupted rail operations in Canada, bringing down timber. Union Pacific had so many containers stuck at their Chicago rail yard, they were completely overwhelmed. We don’t know how long this will last. It will have an impact on inflation. Consumer Price Index was already up over 5% year over year. But now with the cost of shipping that’s so much greater, it’s likely to be passed on in higher good prices. Now, this could be another year and a half or more, like Roxanne Thomas suggested. But we don’t know.
Steven Blitz, he’s the chief US economist at TS Lombard, said “There is no more transitory price than transportation because the capacity can expand and shrink. But the ships, the container ships, are already running at full capacity, as are the ports, and it takes 2-3 years to bring a new ship online.”
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