What a roller coaster it’s been for anyone importing retail goods! The Shanghai Containerized Freight Index shown in the chart below peaked in January 2022 and was 5x higher than its 2019 level. As the world returns to “normal”, sea freight rates are dropping back to 2019 levels. We view freight rates as a barometer of both the supply chain strain and outsized retail demand witnessed during COVID-19. While supply chains are still recovering, inflation in import-driven categories has peaked in our view and may unwind as some of the sea freight savings are passed through. Lower inflation is one of the key triggers for slower retail sales growth over the next 12 months.

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Domino’s AGM trading update has ignited the debate about the extent to which the company has been a beneficiary of COVID-19 lockdowns. Japan is likely seeing -25% same store sales in October. Sales declines in Japan are likely for another 12 months and Europe may have a very soft 2H22e as well.  Domino’s is a well-run business with good long-term growth, but its sales and earnings will reset as lockdowns ease.