Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Container Shipping Industry
Transcript
- Lucas: You know, one thing that doesn't get enough attention in this stagflation story is container shipping. The industry that brought us all those pandemic-era headlines — 'shipping crisis,' 'port congestion,' 'record profits' — is now in a completely different place. Luna: Yeah, the whiplash has been brutal. Spot rates for a forty-foot container from Asia to the West Coast peaked at over $20,000 in 2021. Today they're around $1,500. Lucas: Right. And that collapse tells us a lot about where global demand is heading. The Freightos Baltic Index — which tracks those spot rates — is down something like 85 percent from its peak. That's not just normalization. That's demand destruction meeting a massive supply glut. Luna: So what happened? Wasn't everyone saying supply chains were still fragile, that we needed more ships? Lucas: That was the narrative in 2021 and 2022. So carriers did what any rational business would do — they ordered a ton of new ships. Global container fleet capacity has grown by something like 8 percent in the last two years alone. But here's the problem: global trade volumes aren't growing anywhere near that fast. Luna: And in a stagflation scenario, you get the worst of both worlds. High costs on one side, weak demand on the other. Lucas: Exactly. Let's look at the data we've got from this week. Wholesale prices unexpectedly declined 0.3 percent in June, driven largely by a big drop in gasoline. That's good for consumers, but for a shipping line, fuel is a major operating cost — and it's still volatile. Meanwhile, China just posted its slowest quarterly growth since 2022. That means fewer exports heading out, less stuff to fill those new ships. Luna: So the carriers are stuck with all this capacity and not enough cargo. What do they do? Lucas: They've been doing what they always do — blank sailings. That's industry jargon for canceling scheduled voyages to keep supply tight. Maersk, the world's second-largest container line, announced in June that it would blank about 10 percent of its Asia-Europe sailings in the third quarter. But that's a temporary fix. Luna: And it only works if everyone plays along. If one carrier breaks ranks and runs its ships full, rates crater further. Lucas: Right. The industry has a long history of price wars. And in a stagflation environment, the temptation to chase volume is strong because your fixed costs — vessel leases, crew wages, terminal fees — don't go away. So you end up in a race to the bottom. Luna: Are there any winners here? I mean, lower shipping costs should eventually mean lower prices on store shelves. Lucas: In theory, yes. The cost of shipping a container from Shanghai to Rotterdam has fallen from around $14,000 at the peak to maybe $1,200 now. That should feed into import prices. But the issue is that other costs — raw materials, labor, energy — are still rising. So the net effect on consumer prices might be muted. Plus, retailers and manufacturers locked in long-term contracts at higher rates, so they're still paying elevated prices. Luna: So the spot market is telling us one story, but the contract market tells another. Lucas: Exactly. And that's been a huge source of pain for smaller importers who didn't have the leverage to negotiate favorable long-term deals. They're stuck paying above market while the big guys — like Walmart or Home Depot — can renegotiate or switch carriers. Luna: That feels like a structural shift. If smaller players get squeezed out, does that just concentrate more power with the big carriers and big shippers? Lucas: It could. And the carriers themselves are trying to insulate from the cycle. Maersk, for instance, is pushing hard into logistics — warehousing, trucking, customs brokerage — to become an integrated supply chain company, not just a ship operator. They want recurring revenue that isn't tied to the volatility of freight rates. Luna: That's a smart hedge. But it also means they're competing with their own customers in some cases. Lucas: True. And it's a capital-intensive pivot. Not every carrier has the balance sheet to pull it off. The smaller ones — the regional players — are going to struggle. We might see more consolidation in the coming years. Luna: Which brings us back to the stagflation theme, doesn't it? High inflation, slow growth, and now an industry that's basically being forced to restructure in real time. Lucas: Exactly. And if you think about the broader economy, shipping is a leading indicator. When orders for containers start falling, it tells you that businesses are seeing weaker demand ahead. The latest data from the Cass Freight Index — which tracks North American shipping volumes — was down about 5 percent year-over-year in June. That's consistent with an economy that's growing, but barely. Luna: So what's the takeaway for listeners who aren't in the shipping business? How does this affect their daily lives? Lucas: Well, the cost of anything imported — electronics, clothing, toys, auto parts — is influenced by freight rates. Lower rates should eventually mean lower prices, but it's not a straight line. And if the carriers keep blanking sailings and trying to prop up rates, that delays the pass-through. Meanwhile, if the economy slows further, we could see a real drop in trade volumes, which would hurt employment in ports and logistics. Luna: It also means that the 'just-in-time' supply chain model, which was already fragile after the pandemic, is under even more pressure. Companies might start holding more inventory again, which is expensive in a high-interest-rate environment. Lucas: Right. The cost of carrying inventory is higher when rates are where they are now. So there's this tension between wanting to buffer against disruptions and wanting to keep costs low. That's the kind of squeeze that defines stagflation. Luna: And it's the kind of topic we dig into every day on this show. If walking through the economy with us has made something click — helped you understand why prices are doing what they're doing, or why certain industries are struggling — we'd love to keep bringing you these conversations. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, it really does make a difference. Listener support is what lets us stay independent and ad-free. So thank you if you've already chipped in, and no pressure if you haven't. Luna: Alright, back to shipping. Lucas, you mentioned consolidation — do you see a specific scenario playing out in the next year or so? Lucas: I think we'll see more of what we've already seen: bigger carriers buying smaller ones, or forming alliances to share capacity. The top ten container lines already control about 85 percent of global capacity. That concentration gives them pricing power, but it also makes the system more vulnerable to a single operator's mistake or a geopolitical shock. Luna: And with the situation in the Middle East — the renewed Hormuz tensions, the ECB rate rethink — we've got another layer of uncertainty. If shipping through the Strait of Hormuz gets disrupted, that's a direct hit on oil and container routes. Lucas: Exactly. The World Cup gave bars and restaurants a boost, according to the Fed's latest Beige Book, but the underlying tone is cautious. Consumers are showing warning signs. And when consumers pull back, the first thing that happens is fewer imported goods get ordered. So container shipping is really on the front line of any slowdown. Luna: It's one of those industries where the pain shows up fast. The data is weekly, sometimes daily. You can almost watch the economy slow down in real time. Lucas: Absolutely. And that's why we're watching it. For our listeners, if you want to track this yourself, keep an eye on the Baltic Dry Index — that's for bulk commodities — and the Freightos Baltic Index for containers. They're not perfect, but they're a real-time read on global trade. Luna: Good advice. So to sum up: stagflation is squeezing container shipping from both ends — weak demand and high costs. The industry is responding with capacity cuts and diversification, but the structural challenges are deep. Lucas: Right. And the next few quarters will tell us whether these strategies work, or whether we're heading for another round of brutal consolidation. Either way, it's a key part of the economic picture right now.