This 500% Gain Is Causing Headaches for Nearly Every Industry

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In today’s Money Morning…backlogs for months…how to navigate a freight crisis…any company heavily reliant on exports may be at potential risk…and more…

EDITOR’S NOTE: Ever wondered what education would look like in the future? In this episode of The Money Morning Podcast, Lachlann Tierney has a great chat with Adam Brimo of OpenLearning Ltd [ASX:OLL] about how his company is pushing edtech forward. There are a lot of good nuggets of info in this episode and Adam gives us a full rundown of how OLL can reshape the education industry with a SaaS business model. It’s a super-interesting discussion, check it out.

Generally, as investors, when you hear someone mention a 500% increase of something, your ears prick up…because that kind of return or gain is phenomenal.

Even more so when it happens in a span of just 12 months.

But I can tell you right now that the 500% stat I’m talking about isn’t making most people happy. On the contrary, it is indicative of the biggest impediment facing the global growth rebound right now, in my view.

That’s because this 500% increase is of the spot price of a shipping container.

With the cost to secure just one container from China to the US east coast — one of the busiest routes in the world — setting you back US$20,804. Six times what it would have cost you just over a year ago.

More disturbingly, just over a week ago on 27 July, this spot price was just under US$11,000. Meaning the cost has nearly doubled in the past nine days alone.

And the real kicker is that there is no relief in sight anytime soon…

Backlogs for months

The reason for this surge in the price of containers is pretty simple. Demand for imported goods has been recovering nicely throughout much of 2021. And with Christmas right around the corner, retailers have been trying to load up on stock.

The issue is of course COVID.

As the Delta strain continues to spread, it is putting pressure on ports and shipping: increasing the turnaround time and subsequent costs to get supply chains moving.

On top of that, the weather isn’t helping.

China in particular has been grappling with floods, as well as typhoons. All of which has created a perfect seller’s market, as maritime consultant Philip Damas told Reuters:

These factors have turned global container shipping into a highly disrupted, under-supplied seller’s market, in which shipping companies can charge four to ten times the normal price to move cargoes.

We have not seen this in shipping for more than 30 years.’

So the real question is how long until things return to normal?

Well, don’t hold your breath. Damas isn’t expecting the extreme supply crunch to ease until at least early February. Coinciding with the Chinese New Year for 2022.

In other words, six more months of potential bottlenecks and price gouging for containers.

And while some are already scrambling to secure new orders for freight capacity — equal in total to nearly 20% of the world’s existing capacity — it isn’t expected to be made available until 2023.

Meaning this supply and demand anomaly isn’t likely to be going away anytime soon.

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How to navigate a freight crisis

Where does this leave you then?

First and foremost, don’t be surprised if the prices of some imported goods keep rising, or potentially don’t make it into the country at all.

We may all be in for a more expensive Christmas than usual.

But when it comes to your investments, there are also some short-term opportunities and threats to consider. With the most obvious being shipping/logistics stocks.

Qube Holdings Ltd [ASX:QUB], for instance, has had a bit of a rocky year. They reached a post-COVID crash (March 2020) high back in June. And while the price has cooled in recent weeks, mainly due to the sale of some assets, they could stand to benefit from this freight crunch.

As for potential losers, any company heavily reliant on exports may be at potential risk.

For example, The a2 Milk Company Ltd [ASX:A2M] has suffered a dramatic fall from grace. The share price has plunged 68.55% in the past year already, and this freight cost conundrum could add further pain.

Just two examples of how the market is already reacting to this ongoing situation.

And this may just be the tip of iceberg. Because if this shipping container crunch is set to linger for the next six months or longer, expect other stocks to adapt as well.

As long as you’re aware of it, though, you can put your best foot forward. From an investing point of view at least.


Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

PS: Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.

About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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