Disruption Report #46 – Fuel costs on the rise, container manufacturing costs drop and the power of demand.

The face of a man being afraid of something.

Fuel Costs On the Rise – Will the Shipping Lines Pass the Cost On to Customers?

This single sentence popped out at me when I read a Bloomberg Supply Lines article by Brendan Murray.

“The shipping industry is starting to feel the full force of surging diesel and gasoline costs.

Europe’s Ports Rival U.S. for Congestion and Delays,” Brendan Murray,Bloomberg Supply lines , February 21, 2022

My question: Will the shipping industry, already making record profits, choose to absorb the increased fuel costs as price increases or surcharges, or will it decide to pass it on to its customers? If they do, expect a jolt to shipping costs.

The Cost of Manufacturing Shipping Containers Drops

Freightwaves has an interesting article on the recent drop in the cost of manufacturing a container. It reports that container manufacturing costs have dropped from $4,000 to $3,400: the reason – record production in 2021.

As a result, container inventories are back to normal. That means that there are enough containers to fill orders. Here is how Triton CEO Brian Sondey describes the current situation:

“We are in a situation now where the market is still tight, and we are still effectively at almost 100% utilization, but it is no longer a fact that every container a shipping line gets means one more cargo load they can take. The lines have enough containers in their system to move the cargo.

Demand Is The Root of Inflation and Supply Chain Chaos

So much time is spent talking about inflation and supply chain chaos that we forget that the cause of both is an historic demand for consumer goods. The desire for consumer goods has outstripped our ability to manufacture and ship them. When money chases scarcity, costs go up, and systems break down.

I have spoken with several CEOs who report that they were hard-pressed in 2021 to meet demand. They simply did not have enough machines and certainly, due to Covid and retirements, people

Now that Covid is waning will demand recede, inflation decrease, and the supply chain function? That will be the case if people decide to go back to spending on experiences (travel, dining, and entertainment) – but will they?

The experience industries are struggling to give consumers a good time. Have you been to a restaurant lately? The prices have skyrocketed, and the service has plummeted? Have you been to a theater recently, or are you watching movies at home? Have you flown on an airplane and experienced canceled flights and even fistfights on board?

Yes, people will go back to movie theaters, restaurants, and airports but not in the numbers that were doing so before the virus. Expect demand to stay steady and grow, and for that reason, don’t count on inflation to recede or the supply chain to regain its balance any time soon.

Leave a Reply