Economist finds silver liner in bottleneck at ports

Every day, the bottleneck at the Los Angeles and Long Beach ports, where nearly 40% of all shipping containers pass through the United States each year, appears to be getting worse. The backup began late last year, and as of October 2021 there was a backlog of 80 container ships waiting offshore to unload. This is already a record, and other ships are already on their way from Asia.

The ports of Los Angeles and Long Beach are not alone. Ports from Vancouver, Canada, to Vladivostok, Russia are also seeing record volumes from Asia, including other US ports like Houston and Oakland. The bottleneck has raised fears that shelves will be empty for Christmas or even that consumers will not be able to get hold of essentials. In the CRE industry, concerns center on the economic and retail impact, and how this will again affect property owners who are still recovering from cash flow problems in the past year.

At the GlobeSt.com Net Lease conference, JLL chief economist Ryan Severino was actually not concerned about the bottleneck and managed to find the silver lining. According to Severino, there is a port backlog because demand from the economy has roared so quickly and supply is struggling to keep up. “It’s a not-so-great by-product of a good [economic] development, ”he said, noting that this event was not a redoubt of the 1970s when supply contracted.

Due to a combination of health fears and government-imposed business closures, most consumers spent significantly less than last year. Add three rounds of stimulus, and people now have a mountain of discretionary capital; and they want to spend it. As a result, advanced retail sales have already set a calendar year record and imports at the Port of Los Angeles and Long Beach are at an all time high. The rapid rebound in consumer demand has created problems catching up with supply, according to Severino, and this is manifested in a backlog at ports. Overall, this is good news for the economic recovery, and he says it is playing out like a macroeconomic model.

In the meantime, inflation has set in due to a – at least perceived – scarcity of goods. Once again, Severino is optimistic. He thinks inflation is approaching an inflection point. “The cure for high prices is high prices,” he said.