Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / Why Stagflation Is Reshaping the Shipping Industry
Transcript
- Lucas: So here's a number that stopped me this week: the Baltic Dry Index has jumped twenty-three percent in the last month. That's the biggest monthly gain since 2021, and it's happening against a backdrop where core inflation just hit three-point-four percent — the highest since October 2023. Luna: Right — the Fed's preferred gauge, the core PCE, came in hot on Thursday. So shipping costs are feeding right back into that inflation number. Lucas: Exactly. And it's a classic stagflation pattern: you've got slow growth — real GDP growth was only two-point-one percent annualized in Q1 — but prices keep climbing. Shipping is the circulatory system of the global economy, so when freight rates spike, it ripples into everything from electronics to food. Luna: And we're not just talking about dry bulk. Container rates from Shanghai to Rotterdam are up about fifteen percent since April, according to the Drewry World Container Index. Lucas: Yeah, that's a real number. And the catalyst isn't just demand — it's supply disruption. The Strait of Hormuz situation is the big one. We had that U.S.-Iran deal a week ago, but then on Thursday the UN actually paused its ship evacuation plan after the first vessel attack under the peace deal. So confidence is fragile. Luna: Iran is still warning ships that transit without their approval is 'unacceptable and dangerous.' That's a direct quote from their statement this week. Lucas: Which means insurers are jacking up war risk premiums for any vessel going through the Strait. That adds directly to operating costs. And unlike in a normal inflationary cycle, shipping lines can't just absorb those costs — they have to pass them through, because their margins are already squeezed by slower global trade volumes. Luna: So we're seeing this paradox: freight rates rising even as overall demand for goods is sluggish. That's the stagflation signature. Lucas: Precisely. And it's not just ocean freight. Look at trucking — the spot market for dry van freight in the U.S. is up about eight percent month-over-month, partly because shippers are rerouting cargo away from West Coast ports to avoid potential disruptions from labor negotiations. All of that adds cost and time. Luna: We've talked about reshoring and near-shoring in earlier episodes, but this feels like a different layer. Shipping is the one thing you can't easily reshore. Lucas: Right. You can move a factory from China to Mexico, but the raw materials and intermediate goods still have to move across oceans. The shipping industry is essentially a pass-through for inflation. When bunker fuel prices go up — and they have, with crude bouncing around — that hits every voyage. When geopolitical risk rises, that hits insurance and routing. And when you combine that with sticky core inflation and slow growth, you get a real squeeze. Luna: And a quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these shows. Lucas: Yeah. If walking through the economy with us has made something click, that's the only reason we can keep it ad-free. No pressure, but it does matter. Luna: Okay, back to shipping. So what's the forward look? Are we heading into a prolonged period of elevated freight costs? Lucas: I think so, at least through the second half of 2026. The order book for new container ships is still huge — we're going to see a lot of capacity come online. But the problem isn't capacity; it's the cost of moving that capacity. Bunker fuel is up, insurance is up, and crew costs are up because of inflation. Luna: And the Hormuz situation isn't going away. Even with a peace deal, the enforcement mechanism is unclear. Iran says it still controls the strait. Lucas: Exactly. So you have this structural cost inflation that's not going to reverse quickly. And for businesses, that means they have to rethink their inventory strategies. The just-in-time model that worked for decades is now a luxury. Companies are holding more inventory, which is expensive in a high-interest-rate environment. Luna: We saw that in the JOLTS data this week — job openings jumped to seven-point-six million in April, up from six-point-nine. That suggests employers are still struggling to fill logistics roles, which adds wage pressure. Lucas: Right — average hourly earnings are up to thirty-seven dollars and fifty cents. That's a three-point-two percent year-over-year gain. When you layer that on top of higher shipping costs, it's a double whammy for margins. Retailers, manufacturers, even restaurants — they're all paying more to move stuff and more to staff their operations. Luna: And the consumer is feeling it. The ten-year breakeven inflation rate is at two-point-two-one percent, up from two-point-one-eight. That's market-implied inflation expectations creeping higher. Lucas: So the stagflation loop is self-reinforcing. Higher shipping costs push up consumer prices. Higher consumer prices push up wage demands. Higher wages push up shipping company costs. And slow growth means you can't grow your way out of it. Luna: What's the one concrete thing a listener could point to this week as a sign of this trend? Lucas: I'd say watch the price of a forty-foot container from Asia to the U.S. West Coast. It was around fifteen hundred dollars in January. Now it's over two thousand. That six hundred dollar increase — that's not just a blip. That's the stagflation tax on every imported good. Luna: And it's not going away anytime soon. Thanks for this deep dive, Lucas. Lucas: Thanks, Luna. We'll keep tracking it.