Warehouse Data Show Inflation Could Roar Back With a Vengeance

Warehouse workers deal with inventory stacked up to the ceiling at an ABT Electronics Facility in Glenview, Ill., on Dec. 4, 2018. Richa Naidu/Reuters

The latest warehouse data are showing signs that inflation could come back with a vengeance this year.

As U.S. markets await the latest release of the Consumer Price Index (CPI) on Feb. 14, logistics managers are warning of growing signs of inflation in the supply chain, which may financially hurt consumers.

The CPI for December saw the smallest year-over-year increase since October 2021, at 6.5 percent inflation on an annual basis, after reaching a 9.1 percent high last June.

Over the past year, many of the key causes of supply-chain inflation, such as high freight and fuel costs, which led to a spike in consumer prices, have declined dramatically.

Since then, a glut in inventories caused by a lack of consumer demand has increased price pressures on warehouse rates.

Inflationary pressures have persisted into this year, as demand outpaced supply, particularly in U.S. warehousing capacity, which was partially caused by the lack of new facility construction.

WarehouseQuote, a data provider in the industry, released a report in January that said that 50 percent of warehousing requests in the last quarter of 2022 cited a lack of capacity as the primary reason for needing warehouse space.

“National warehousing capacity remains low and will remain tight for the foreseeable future as U.S. industrial construction starts have fallen considerably year over year due to rising interest rates,” Chris Huwaldt, vice president of solutions at WarehouseQuote, told CNBC.

Storage Prices Rise Nationwide

U.S. storage prices have shot up 1.4 percent month over month and 10.6 percent year over year, according to the warehouse data provider.

Consumer prices have dropped sharply over the past few months because of a cool down in inflation since the pandemic.

Meanwhile, Federal Reserve Chairman Jerome Powell triumphantly expressed at the end of the Fed policy meeting early this month that de-inflation had begun.

Fed policymakers have been focused on services inflation, particularly labor costs, as they expect pressure on the price of goods to continue to weaken.

However, persistent logistics issues will continue to keep inflation high, as shipping companies keep their products in containers offshore, due to the lack of space at warehouses and distribution centers, leading to added costs which are eventually passed on to the consumer.

For example, shippers are initially allowed a certain amount of days in which they are not charged for holding a container, but once the grace period expires, they are charged with late fees for keeping the stored products out of port.

Allowing containers to dwell offshore also restricts the movement of newly arrived cargo, putting additional stress on transportation pools throughout the United States.

Retail Inventory Imbalances Persist

Shippers already facing inventory imbalances could lose tens of millions of dollars per quarter, on top of weakening consumer demand and hurting future earnings, Paul Brashier, vice president of drayage and intermodal for ITS Logistics, told CNBC.

Brashier predicted that late fee charges would surge in the second and third quarters of 2023.

He said that his company had advised its clients to reduce financial losses by utilizing short-term storage space offered by third-party logistics providers and grounding operations.

“This will reduce reliance on storing freight in ocean containers,” said Brashier.

The construction industry is one of the main economic sectors still facing persistent supply-chain inflation. Developers find it increasingly difficult to complete construction projects on time due to shortages of building materials.

Inflation has also been affected by higher costs related to the diversion of containers to East Coast ports, production disruptions and shortages in China, and a price spike for higher cost alternatives, such as air freight and truck delivery services.

Even with inflation slowing down, higher consumer prices are expected to remain, as companies focus on maintaining profit margins and the fulfillment of contracts set with suppliers before the recent price declines.