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Dispatch From the Director: Let Cooler Heads Prevail

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Denver Transportation Institute

Feature  •
Institutes  •
David Fisher

There is no shortage of highly charged statements and dramatic statistics related to the state of supply chain and how the transportation industry is reacting. The word “crisis” is being used a lot. Too much perhaps. 

Is it a crisis, or are we testing the extreme case of price and capacity elasticity? The behavior of trade is rooted in how resources are distributed. In transportation and supply chain, the root of elasticity is determined by, in its simplest form, the quantity of materials that need to ship and the quantity of available transportation capacity by mode at origin.  

The pandemic sent the fast-moving dynamics of micro-economic buying behavior into a head-on collision with slower to react macro-economic capability to produce and distribute. Likewise, in a way that is rare in contemporary history, the source geographic locations of goods shifted somewhat. So, the element of where things are, from raw materials to finished goods, shifted quantities by location, sending the transportation industry into the challenge position. It is unusual but  not actually more complicated than that.  

Data points to reality. With a few anecdotal exceptions, the steamship lines, truck carriers, the rails, the airlines, the ports, and every other supplier in the transportation supply chain are all, and have been throughout the pandemic, honoring their pricing and capacity agreements with their major shippers. The news related to $15,000 container rates is not the reality for most. These unusual price elements only apply to shippers that are dealing with exceptions of quantity by location shift. General transportation inflation rose between 2-16% depending on the region and mode, which is high, but that pricing seems to have plateaued and the inflation for 2022 will likely be relatively flat and less volatile unless the pandemic swings negative again. Lastly, news about congestion at all the major ports is not as dramatic as it seems. We are seeing serious volumes, but the ports can handle it. They are designed to adjust and flex and each of the North American ports are doing an excellent job given the circumstances.  

What we are seeing is the remnant of the pandemic event. The stone splashed in the water some time ago and now we are experiencing the waves as equilibrium is, eventually, achieved. Markets work well until they do not, but for now, our markets seem to be working as they should.