Shipping Costs Skyrocketing Again

by | Jul 1, 2024

Late last week, I got a reader question asking about the rising price of shipping.

The reader wanted to know what it means for the economy, if this trend will continue, and whether it could kickstart more inflation.

Here are my thoughts:

Yes, as you can see on the following chart, shipping prices are up from the historical baseline.

Not quite as high as during the darkest days of the Covid supply chain disruptions, but still much higher than average:

Problems in the Panama and Suez Canals

Two major issues are driving up shipping costs.

First, the Panama Canal is experiencing a severe drought, which means there’s not enough water to fill the locks. As a result, ships have to reduce their weight by 30%, which increases the cost per shipment.

In addition to less cargo per ship, the authority that oversees the Panama Canal has reduced the number of daily crossings from about 35 to just 24 per day.

So not only is each ship carrying less cargo — but there are fewer ships crossing each day.

If you’re not familiar with how the Panana Canal works, here’s a graphic that explains it.

Ships start out either on the left in the Pacific Ocean or on the right in the Atlantic.

They then have to enter a series of locks which are filled with water from Gatun Lake, raising the ship and allowing it to enter the next lock, until it makes its way across and does the process in reverse on the way down the other side.

Coincidentally, just 4 days ago, the Panama Canal Authority just announced that in August, they will increase the number of daily crossings from the current 24 to a more typical 35. If this actually happens, it could mean that the issues at the Panama Canal are more or less resolved.

Another big problem that I don’t see ending anytime soon is happening with the Suez Canal in Egypt.

The Suez Canal is plagued with challenges, including piracy and ongoing conflicts in the region. The cost of insuring shipping containers passing through this area has skyrocketed, further pushing up shipping expenses.


Impact on the Economy and Inflation

These increased shipping costs are bound to trickle down to consumers.

As I mentioned above, we might be starting to see a light at the end of the tunnel for the issues in Panama, but until there’s a long-term resolution to the issues in the Suez Canal, the cost of goods is likely to remain high.

This could potentially kickstart more inflation as businesses pass these additional costs onto consumers.

Higher shipping costs contribute directly to the cost of goods sold. When companies face increased costs to get their products to market, they often have no choice but to raise prices to maintain their profit margins.

This increase in the cost of goods can spread across various sectors, impacting everything from electronics to clothing… until it trickles down to every sector and contributes to overall inflation.


Domestic vs. International Shipping

It’s important to note that these issues primarily affect ocean freight and shipping from overseas.

Once goods hit our ports, the impact on prices is less pronounced unless there’s a significant increase in gas or diesel prices. However, many of the items we rely on come from overseas, so the effects will still be felt.


A Silver Lining

There’s a bit of good news in this scenario.

Many U.S.-bound products from China are shipped directly to California without needing to pass through either the Panama or Suez Canals.

This means that for now, at least, goods coming from China should not see the same level of price increases due to shipping costs.

To sum it all up… While we navigate these shipping challenges, it’s crucial to stay informed and adjust our strategies accordingly. We’ll keep an eye on these developments and how they might impact our trading decisions.

— Geof Smith

P.S. Did you see Jeffry’s automated trading tool? It spits out 3-5 high-probability trades per day. It’s definitely worth your attention. Check it out here.




TIME: One of the biggest enemies of traders everywhere…

Time — there just aren’t enough hours in the day…

Never enough time for a dedicated trader to pull up every chart…  look at every strategystudy every setup

So one market genius started working on an automated way to do all that — and MORE — and Apollo was born…

Reclaim your time AND master the markets with Apollo!




What to read next