One Economist Finds a Silver Lining in the Bottleneck at the Ports

Every day, the bottleneck at the ports of Los Angeles and Long Beach—where nearly 40% of all shipping containers that pass through the US each year—seems to worsen. The back up started late last year, and as of October 2021, there is a backlog of 80 container ships waiting off of the coast to unload. It’s already a record, and more ships are already on the way from Asia.

The Ports of Los Angeles and Long Beach aren’t 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 sparked fears that shelves will remain empty for Christmas or even that consumers won’t be able to get essential goods. In the CRE industry, concern is focused on the economic and retail sale impact—and how that will once again affect property owners still recovering from cash flow issues over the last year.

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

Due to a combination of health fears and government-mandated business closures, most consumers spent significantly less than in the last year. Add in 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 record for the calendar year and imports at the Port of Los Angeles and Long Beach are at a record. The rapid rebound of consumer demand has created some issues for supply to catch up, according to Severino, and that is manifesting as a backlog at the ports. Overall, it is good news for the economic recovery, and he says it is playing out like a macro-economic model.

In the meantime, inflation has taken hold due to a—at least perceived—scarcity of goods. Once again, Severino is optimistic. He believes that inflation is nearing an inflection point. “The cure for high prices is high prices,” he said.