Where Do We Go From Here?

The pandemic may be waning, as health metrics nationwide indicate a positive trajectory with our control over Covid-19, but the secondary effect on our economy might long outlast the virus. Now we must ask: Is this a temporary bubble caused by Covid-19, or a sign of more to come?

The cost for many commodities, goods, and related services are escalating; lumber, steel, iron, fuel, shipping, and just about anything that relies on production or supply chains are seeing a rapid rise. Pricing in all lumber categories continues to break records as futures prices surge with no relief in sight. In mid-April, lumber futures for every delivery month in 2021 were all above $1,000 per MBF (1,000 board feet). By the beginning of May the spot prices were averaging $1,294.70, and as of May 12th, the NASDAQ closing price had risen to $1,544.50. That is a 50% increase in a single month. To put this in perspective, one year ago the same lumber futures were trading for $345 per MBF.

Ocean freight rates are of particular concern for many importers, and subsequently retailers, as this increased cost will need to either be offset by profits or be passed on to the consumer. “One year ago AWS (All Waster Service) contracts from the east coast of China to NYNJ was roughly $3,200.00 per FEU (Fourt-Foot Equivalent Unit) and today that same service is roughly $4,352.00 per FEU, which is a 36% increase and we expect additional increases of over 30% over the next year,” said John Rocca of DMG Logistics. “Not to mention the ships backing up in the harbors for days at a time waiting for a berth to open up due to the shortage of labor, and truckers willing to wait in endless lines at marine terminals to pick up containers, as a result container local and regional drayage rates are also up roughly 30% over the past 10 months.”

Warehouse lease rates are also continuing to rise, particularly in port areas where proximity to the marine terminals are driving low inventory. These issues are here now, and very real. Others may be looming. It’s difficult to comprehend where the money will come from to absorb all these increases, and the future impact on our economy remains to be seen. Again I ask: Is this a temporary bubble caused by Covid-19, or a sign of more to come?