Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Freight Shipping Industry
Transcript
- Lucas: So the latest import price data shows costs of goods coming in from China hit their highest level since 2008. And that's happening even as the economy grows at a modest two point one percent annual rate. That's the stagflation tension right there — rising costs with slow growth. Luna: And that import cost spike lands directly on the freight shipping industry. Those are the companies moving containers from Shanghai to Long Beach. They're caught between rising expenses and customers who can't stomach another price hike. Lucas: Exactly. Let's look at the numbers. The price index for imported goods from China has been climbing steadily. Meanwhile, real GDP growth annualized at two point one percent in the first quarter — up from just half a percent the prior quarter, so it's not collapsing, but it's far from robust. And inflation is still running above the Fed's target. Luna: The core PCE price index is at 130.1, up from 129.67 a month earlier. So prices are still rising, just not as fast as 2022. But for freight companies, the cost inputs are brutal — fuel, labor, equipment. Lucas: Fuel is a big one. Oil prices have been volatile, but they're up year over year. The spot price for West Texas Intermediate is hovering around the mid-seventies per barrel, which is higher than the average through 2024 and 2025. For a trucking fleet or an ocean carrier, that hits the bottom line directly. Luna: And labor is tight. The unemployment rate is down to 4.2 percent. Nonfarm payrolls continue to edge up, but average hourly earnings are at $37.60, up thirty cents from last month. That's wage inflation of about 4 percent annualized — good for workers, but it squeezes margins for shipping companies. Lucas: Right. So you've got fuel costs up, wage costs up, and the price of buying or leasing trailers and containers is also up because steel and aluminum prices haven't come down. The result is that freight rates — what retailers pay to move goods — remain elevated compared to pre-pandemic levels. Luna: The data backs that up. The Cass Freight Index for shipments is still below its 2021 peak, but the expenditures index — what shippers spend — is much higher. That's a clear sign of higher rates per shipment, not just more volume. Lucas: And that feeds into the consumer price index. When Walmart or Target pays more to bring in a container of electronics or apparel, some of that gets passed on. But with consumer spending under pressure from high prices and slowing wage growth, retailers are hesitant to raise prices too much. So they squeeze the freight companies further. Luna: It's a vicious cycle. Lower demand for shipping means fewer loads, which means carriers have to raise rates to cover fixed costs, which then makes shipping more expensive, which further depresses demand. Lucas: Let's bring in the job openings data — JOLTS came in at 7.594 million for May, up slightly from April. That suggests the labor market is still tight, especially in transportation and warehousing. Trucking companies are offering signing bonuses again to attract drivers. That's a cost that doesn't go away. Luna: So where does the freight industry go from here? Are we looking at a period of sustained higher costs, or is there a relief valve? Lucas: Some analysts think the peak of import cost increases may be behind us. The ocean container spot rates have pulled back from their June highs, but they're still double what they were in early 2023. And with the Fed likely holding rates steady — the 10-year breakeven inflation rate is at 2.2 percent, well anchored — it's not clear we'll see a rapid decline. Luna: There's also the policy angle. The administration is talking about tariffs on generic drugs from China starting in 2028. That's a while off, but it signals a continued focus on reshoring and protectionism, which could mean less reliance on Chinese imports over time. Lucas: Yeah, but reshoring takes years. In the meantime, the freight industry is stuck in this high-cost, slow-growth environment. It's exactly the kind of sector where stagflation shows up — inputs rising faster than demand, margins compressing, and everyone passing the buck. Luna: It makes you wonder how long this can persist before something breaks. Either demand picks up, or costs come down, or we see a wave of consolidation among smaller carriers. Lucas: We're already seeing that — a few regional trucking firms have filed for bankruptcy this year. The larger players like J.B. Hunt and Schneider have more pricing power, but even they are reporting lower earnings per share quarter over quarter. Luna: Before we go further — if walking through the economy with us has made something click, a couple of dollars a month is genuinely what keeps these conversations going. Buy me a coffee dot com slash fexingo. It's how we stay ad-free and focused on the data. Lucas: Yeah, listener support really does make a difference. It's a few bucks that add up to covering hosting costs and research time. No pressure, but if you've gotten value, that's the outlet. Luna: Alright, back to the freight squeeze. One more data point: the producer price index for final demand transportation and warehousing services was up 0.3 percent in June. That's a direct reflection of the higher costs carriers are facing. Lucas: And that flows into the CPI. The CPI for all urban consumers is at 332.6, down from 333.98 in May, so inflation is easing, but it's still sticky. The core CPI is basically flat at 336.1. So the freight cost pressures are one reason inflation isn't falling faster. Luna: So for listeners who see higher prices on store shelves — part of that story starts at the port and on the highway. It's not just corporate greed; it's a genuine cost-push situation. Lucas: Exactly. And the risk is that if oil prices spike again — say, due to geopolitical tensions in the Middle East — the whole cycle accelerates. Right now, the injection points are all there: tight labor, high fuel, high import costs, and modest demand. Luna: That's the stagflation recipe. And it's why we keep coming back to this show — because it's not just a historical curiosity; it's happening now. Lucas: Next episode we'll look at how another industry is navigating these crosscurrents. Until then, keep an eye on those import numbers and the weekly jobless claims — they tell the story before the headlines do.