If investors look only at financial markets, they might not think inflation is looming but real-world events on the ground are telling a different story, according to Peter Garnry, head of equity strategy at Saxo Bank.
E-commerce stocks are up 67 percent in 2020 and show no sign of ending their momentum, Garnry wrote in a blog for the Danish investment bank, which specializes in online trading and investment.
The four largest e-commerce stocks in 2020 — Amazon, Alibaba, Walmart and PayPal — still have a lot of growth ahead of them, Anders Bylund wrote for the Motley Fool.
However, global container rates are rising and delivery van shortages are pushing up logistics costs for e-commerce businesses along the last mile.
“This is real inflation on the ground,” Garnry wrote. Investors could be completely overlooking a negative surprise in the fourth quarter, he said.
The market for global containers fell 4.7 percent in the first quarter of 2020 due to the coronavirus pandemic and 10 percent in the second quarter, Barrons reported. Despite the decline in demand, spot container freight rates increased in recent months, according to Fitch Ratings.
Maersk said it expected adjusted earnings for 2020 to be $7.5-to-$8 billion, up from its $6-to-$7 billion estimate in August.
Freight rates have been going up since June 2020 driven by re-stocking, increased demand for personal protective equipment, and inventory growth ahead of the holiday season to cover potential disruptions. Rates accelerated in August as demand improved and reached record levels in October.
The three largest shipping companies — Maersk, CMA CGM and Hapag Lloyd — could have their most profitable year in 2020, Fitch reported.
The global container shipping industry has consolidated in recent years. The three largest alliances now account for about 80 percent of the global market, Fitch reported. Shipping companies are overwhelmingly non-U.S. entities that pay little or no U.S. tax, according to Freightwaves.
Some estimates put free shipping and returns and warehousing at around 10 percent of the total retail price, Garnry said. “If we assume free shipping and returns are around 7 percent of revenue, then a doubling of those costs could significantly impact the operating profitability of e-commerce businesses.”
Economic inflation and market-based indexes do not suggest inflation is here, Garnry wrote. However, FedEx and United Parcel Service are short of vans to deliver e-commerce packages and it’s hurting profits as online orders explode in volume due to covid-19.
Bloomberg described this a “surprise cost squeeze” during record demand for deliveries. Leasing firms are buying used vehicles as rentals are increasingly harder to come by.
Merchants Fleet leases vehicles to package delivery companies. In 2019 it had 6,000 vans for lease to delivery firms. Now it has 15,000.
“If there’s a cargo van out there, we’re trying to buy it,” CEO Brendan Keegan told Bloomberg.
Automakers are struggling to keep up with demand with 1 million fewer vehicles available in the U.S. in October 2020 than a year ago. Carriers are compensating contractors for the costs they incur as they rent additional vehicles, Pymnts reported.
“If commodity prices also rise, then the entire global supply chain will begin feeling the input cost pressure,” Garnry wrote for Saxo.
