Supply Chain Disruptions and Inflation in 2024
One major catalyst for the surge in inflation was the disruption to supply chains caused by the pandemic. As the vaccine distribution commenced and economic restrictions were lifted, an unprecedented economic boom unfolded. However, the global supply chain had not recovered and was unable to meet demand. Leading to the inflationary crisis observed between 2022 and 2023.
Despite the moderation in inflation and the reduction in shipping costs, the specter of supply chain vulnerabilities persists. Potential disruptions from climate change and geopolitical events loom as ongoing threats, posing risks to the global supply chain. Such disturbances have the potential to thwart efforts to temper inflation in 2024. Therefore, investors must understand these threats to the global supply chain.
Disruption to Shipping
These potential disruptions involve major choke points when it comes to global shipping - the Suez Canal and the Panama Canal.
The Suez Canal facilitates 30% of global trade traffic with 60 daily ship transits, serving as a vital link connecting the Red Sea and the Mediterranean. This strategic waterway expedites the movement of ships from Asia and the Middle East to Europe and North America. Unfortunately, the Red Sea has become a contested zone, marked by attacks on civilian ships by Houthi forces in Yemen. In response, a multinational coalition, spearheaded by the United States, has united under the banner of Operation Prosperity Guardian. Should the conflict escalate then there are concerns that it could result in the price of goods going up again.
The Panama Canal plays a crucial role in global trade, accounting for 7% of traffic with 38 daily ship transits. Serving as a vital connection between the Atlantic and Pacific Oceans, this strategic waterway accelerates the movement of ships from Europe and the Eastern Coast of the US and Canada to the West Coast. However, a regional drought has led to reduced water levels, impacting the canal's capacity and limiting the number of ships that can pass through.
Recent disruptions in global trade have contributed to a resurgence in shipping costs, albeit not reaching the severity observed in 2022. However, there are apprehensions that this could lead to a modest increase in inflation. Investors, while relieved about the stability in interest rates, may need to monitor the potential decline in the likelihood of rate cuts.
What it Means for Investors
The recent disruptions in shipping underscore the imperative for reshoring and near-shoring within the manufacturing sector. The economic upswing of 2022 underscored the necessity of reducing dependence on China and relocating operations to Mexico or back to the United States. This shift has been propelled by a suite of policies enacted between 2021 and 2022. Concurrently, several points of entry have experienced remarkable growth surpassing 20% in 2023, with expectations for continued expansion in the years ahead.
Real estate investors should perceive this situation as an opportune moment to expand or diversify their portfolios. Those considering investments in industrial properties would be wise to engage with a specialist to identify markets that align more closely with their financial objectives. Consulting with experts can provide valuable insights for strategic decision-making in the current market conditions.
The Azucena Take provides an inside look into the investment real estate market using the research done by Marcus & Millichap.