Wholesale inflation took an unexpected leap in January 2009.  Today, the Labor Department said that wholesale prices increased by 0.8% last month.  This represents the largest increase since last July and well above economists expectations of a 0.2% increase.

So, why does this economy need some inflation (some being the key word).  Our economy is driven by consumer spending.  We earn income and then we spend it at an alarming rate.  However, during this recession, consumer spending has all but dried up.  This is partially due to the freezing of the credit markets, but also due in large part to consumer expectations and confidence.  Americans are “on the sidelines” waiting to see what happens before they get back into the spending frenzy.  Why buy today when it will be on sale tomorrow?  What inflation does is add a little urgency to the equation.

If consumers anticipate that things may be more expensive if they wait, they will act sooner.  In the real estate world, investors have been sitting idle because they feel that prices are declining.  If they wait until next week/month/quarter they can get the same property for less.  A healthy dose of inflation should help them realize that prices might not fall forever.

Maintaining a healthy level of inflation (over deflation or stag-flation) will do wonders to get our economy back on track.  Even the expectation of impending inflation should be very helpful.  If anyone needs confirmation of this, take a look at Japan in the mid-1990′s (or call me and I’ll walk you through the interaction).

Today, February 18, 2009, is the day when the Ports of LA and Long Beach will begin collecting the Clean Truck Fee (CTF).  This fee, amounting to $35 per 20ft container or $70 per 40ft container, is to be paid by the cargo owner (as named on the bill of lading).  No cargo will be allowed in or out of the port unless this fee has been paid, no exceptions.  

I can appreciate the POLA/POLB position and their desire to clean up the environment.  However, I continue to question whether an additional fee is the wisest move in this economic environment.  I wouldn’t want to give a current customer any reason to take their business somewhere else.

For more information on the project, please see the Portcheck.org website.

How can this:

affect this:

Well it can in more ways than you’d think.  The animal pictured above is the Right Whale.  The Right Whale is a species of baleen whales growing up to 18m long and weighing upwards of 100 tons.  The beleaguered creature earned it’s name because whalers thought it was the “right” one to hunt due in large part to the fact that they float when they are killed.  These creatures live in three distinct areas of the world, one of which is the Western North Atlantic ocean, near the East Coast of the US.  In the spring and summer they live up around New York, and in the summer they head to Georgia and Florida – much like many snowbirds.

This annual migration puts them directly in the path of some of the busiest shipping lanes the US has to offer.  In fact, the leading cause of death for a Right Whale is a ship strike.  As you can imagine, hitting a 100 ton animal doesn’t leave the ship feeling too great either.  However, ships can be repaired, whales can’t.  In 2006, several conservation groups sued the NOAA and prompted them in 2008 to impose a cap on ship speeds when they are 23 miles (20nm) from a major US east coast port.  During the whale season (varies by port), the ship captains must maintain a vessel speed less than 10 knots when they are within this 23 mile radius.  January 2009 was the first time when an area was affected by the new regulations.

A typical ship speed for a container vessel would be closer to 25-26 knots.  This reduction in speed means it takes longer to reach our east coast ports.  In the shipping business, time is money and efficiency is everything.  Several of the east coast ports are “river ports” where ships must steam upriver once they reach the coast.  Those steaming speeds are typically closer to 6 knots.  As shipping lines evaluate where to bring their ships, the amount of time it takes to reach each port will certainly be a consideration.  It’s too early to tell, but you would think that the east coast ports, and the river ports specifically, may find themselves at somewhat of a disadvantage.