Profits come before growth in a post-pandemic economy
Companies traumatised by the recession might just raise prices instead of supply as demand recovers. That will slow recovery, but only temporarily.
IT should be a great year for economic growth. The mass distribution of vaccines combined with multiple rounds of fiscal stimulus and pent-up demand for in-person activity provide plenty of reason for optimism in 2021. But if you're looking for a potential stumbling block for the economy, consider the container shipping market, where prices have surged in response to rising US consumer demand for imported goods.
Demand for goods has gone up during the pandemic as consumers spend money on physical items rather than activities like travel and dining, leaving the container shipping market supply-constrained and unable to keep up with demand. And while ordinarily the response to rising demand would be to increase supply accordingly, the dynamics are different in a consolidated industry where a handful of players control how much supply to produce - as now exists in the container shipping market.
The same is increasingly true in the homebuilding industry, where inventories remain at historically-low levels. And we saw similar dynamics at work among airlines prior to the pandemic: the consolidated industry was punished by investors whenever it got too ambitious in increasing capacity.
KEYWORDS IN THIS ARTICLE
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
International
Biden vetoes bid to repeal US labour board rule on contract, franchise workers
Economic leaders of South Korea, Japan, China say FX volatility is a risk
US automakers win extension on use of Chinese graphite in EV tax credits
US service sector contracts in April; price pressures up
Thaksin’s daughter calls central bank independence an ‘obstacle’
US jobs growth slows in April; jobless rate up to 3.9%