Commentary |
Will The Red Sea Blockade Reignite Inflation Fears? Houthi rebels are attacking Red Sea vessels and greatly limiting traffic in one of the world’s most critical shipping lanes. Four of the world’s five largest container shipping companies, accounting for slightly over half of the world’s container traffic, have suspended transit through the Red Sea. As the graphic below shows, the alternative route, around South Africa, adds about 40% to the distance and, therefore, more time and energy expenses. Over 10% of all oil and 20% of container traffic are shipped through the Red Sea.
If the Houthi rebels continue to wreak havoc on this vital shipping lane, might it rekindle inflation? ISI Shipping Analyst Jon Chapell via Freight Waves thinks it is possible – “In a worst-case scenario, in which Red Sea transits for all ship types are heavily curtailed, we could see freight prices go up multiples — think five to 10 times. These costs would be passed through to the consumers and shippers, and supply chain bottlenecks would re-emerge as the greater distances around Africa would tie up extreme amounts of shipping capacity.” However, he notes a joint naval task force to escort ships could restore confidence, allowing vessels to use the Red Sea again.
We think the blockade may pressure shipping costs higher for some goods, but alternative routes should limit shortages even in the event of a complete shutdown. Further, the U.S. is much less reliant on the Red Sea than Europe and other nations. Per Moody’s, “(U.S.) Shoppers shouldn’t expect the price of the things they buy to rise much, if at all, because of the shipping chaos.“ Source Lance Roberts |
Philadelphia Fed Despite a recent bout of good economic data, The December Philadelphia Fed survey was -10.5, which was worse than the expected -4.0. The survey has been negative in 14 of the last 16 months, with just one positive print in the last year. Philadelphia is the sixth largest city and a significant production and transportation hub. As we see in this survey and other manufacturing surveys, the manufacturing sectors continue to struggle despite what appears to be a robust economy.
The graphic below shows expectations for the current quarter are weak. Only 20.6% of the firms surveyed see increased production this quarter. 35% see no change, and 44% think it will decline. Source Lance Roberts |
Big oil enters 2024 strengthened by U.S. industry consolidation |
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