Port Congestions: The Inflation Maker.

Science/Business | David Wu | September 3rd, 2022.

A 7% drop in the Dow Jones Industrial Index led to the closure of the New York Stock Exchange for day trading on February 28, 2020; 15% of United States workers were unemployed within the first three weeks of March 2020. These figures became commonplace on news channels during the beginning of the COVID-19 pandemic. Economies worldwide were hit hard by the sudden dive in consumer demand as people began quarantine and lockdown. Without consumer spending — the largest sector of a nation’s Gross Domestic Product — central bank institutions across diverse economies neutralized interest rates and printed currencies to increase the money supply drastically. Indeed, these monetary policies successfully brought up consumer demand: April 2021 saw the consumer index at 120% of the pre-pandemic levels. 

Yet, all actions come with side effects. Printing money, especially by the Federal Reserve, has caused monstrous inflation rates, negatively affecting the value of the USD and the real-income levels of average American families. Nonetheless, monetary policies have not been the only culprit for hyperdrive inflation. A typical market consists of supply and demand. The demand, as stated, has recovered; however, the supply chain, already diminished by a low labor force participation rate, has been hit by an unsuspecting factor: port congestion. The relationship between shipping and supply is substantial. Understanding the re-escalation of port congestions in the United States through business and labor relations may offer light to recover tainted economies. 

Shipping is the most integral element in transporting goods and services in the globalized economy. The low cost and high cargo capacity, albeit with a long transportation time, make maritime shipping carry most of the world’s goods. The United States has approximately 20 ports capable of all necessary operations with goods transported between on and offshore trade. However, the early days of August 2022 saw the Ports of Oakland, Charlestown, Long Beach, and Los Angeles piled with ships outside port terminals. Why couldn’t the ships sail to the other 12 uncongested ports? The answer lies in long-term business contracts between shipping carriers and retailers. A signed contract is typically a decade long, making changes in ports of operations difficult. Furthermore, facilities on the specific ports that agree to carry the corporations’ goods and services are fixed capitals that may not be available in other ports. For example, the United States Department of Transportation and the Department of Commerce have diverted ships to the Port of Miami. Nonetheless, inflexible business contracts within a free market economy would stumble the supply chain without government intervention, evincing the fragility of the globalized economy.

The other contributing factor is the port itself. Vital ports like the Port of Los Angeles employ around a thousand employees, ranging from cargo loaders to semi-truck/rail conductors to security and management personnel. Nonetheless, a thousand employees seem to be insufficient. The lack of employees to transfer goods from container ships to land vehicles — how goods and services reach domestic economic markets — is problematic. When maritime cargo is not transported out of the port, the packages remain at the port; however, no single warehouse on planet earth retains infinite capacity. Once the maximum storage maximizes at port terminals, the port must hold all arriving ships at bay, gifting news media countless photographs of docked boats off the coast. Several preceding actions by the federal government, such as penalties for persistent cargo leftovers, have helped mitigate the deadlocks. Furthermore, city authorities plan to increase the employment of drivers and handlers to increase capital and productivity.

The United States has faced similar hyperinflation in the past. Governments, financial institutions, and private enterprises have contingent plans and rebuilding strategies. Nonetheless, the contemporary threats compromising the economy diminishes the supply. In economic studies, a decrease in aggregate supply causes unemployment and inflation — the most undesirable. Of course, economies never operate on perpetual growth or deficit; however, managing harsh economic conditions would grant catalysts for foreseeable expansion.