Rigidities in Transportation and Supply Chain Disruptions

In this paper, we provide a simple and intuitive story for supply chain disruptions driven by the rigidities in the transportation sector. Focusing on maritime shipping, we argue that the frequent macroeconomic shocks that shape demand for transportation meet a highly inelastic supply curve for transportation services. The steepness is driven by equilibrium bottlenecks in ships (transportation agents) and ports (transportation infrastructure). This leads to highly volatile shipping prices and port congestion, affecting importers and exporters worldwide. We discuss how both global trade and inflation react to these costs so that disruptions pass through to the entire economy.