Posted on 08/06/2021 6:10:53 PM PDT by blam
With the latest weekly update of container shipping rates showing that prices – already at all time high – simply refuse to back down, as rates from China to the US surpassing a record $20,000, a new threat looms which could send already sky high prices into orbit. As the delta variant spreads on the mainland, most Chinese ports are now requiring a Covid test for all crew, with vessels forced to remain at anchor until negative results are confirmed, and requiring ships to quarantine for 14-28 days if they previously berthed in India or changed crew within 14 days of arriving.
That spells further delays, further price increases and, according to Splash, shipping will need to start to make contingency plans should China – the world’s most important nation for shipping movements – emerge as another pandemic epicenter.
The delta variant has broken through the country’s virus defences, which are some of the strictest in the world, and reached nearly half of China’s 32 provinces in just two weeks. While the overall number of infections — more than 360 so far — is still lower than Covid resurgences elsewhere, the wide spread indicates that the variant is moving quickly with many millions of Chinese now in lockdown.
“For freight markets, the implications include delays at ports as authorities screen crews of incoming vessels and a hit to China’s oil demand if widespread lockdowns are imposed,” a report from Braemar ACM pointed out this week.
When a Covid-19 outbreak was detected at Yantian Port in late May, operations at the key southern Chinese export hub were slashed by 70% for most of June. Similar disruptions are in the cards in the coming weeks, while shipyards are also likely to see their delivery schedules come under pressure if any wider lockdown measures are taken.
“As long as lockdowns remain confined to China, the impact on freight markets is likely to be muted, especially in the case of wet and dry freight. The container market seems most vulnerable if we see more severe disruptions to manufactured products supply chains,” commented Plamen Natzkoff, senior trade expert at VesselsValue. On the potential tanker ramifications, Natzkoff said: “An immediate impact of a lockdown in China is reduced population mobility which would have a direct impact on demand for transportation fuels, potentially impacting negatively the tanker market.”
On the possible consequences for the container sector, Alan Murphy, CEO of Danish consultancy Sea-Intelligence, reminded readers of what happened in February 2020 when China first went into lockdown. Carriers responded with a wave of blank sailings.
“Assuming that a strict China lockdown would lead to a scenario as in February 2020, we would expect a drop in production of 15-20% for about a month,” Murphy suggested.
While that at first might not sound too detrimental, after all that is in rough numbers what happens every normal Chinese New Year, 2021 is not a normal year.
“Cargo owners, already stressed beyond sanity from devastatingly high freight rates and absurd surcharges, and with no way to secure neither equipment nor space, would suddenly see their procurement costs sky-rocket in addition to their back-breaking logistics costs,” Murphy predicted, adding that the one possible silver lining for shippers could be that as the production decreases start to wave out to the Chinese ports, pressure would start to ease off on the ocean bottleneck, which could start to bring down freight rates.
The added concern Murphy has is if Chinese ports were not able to run at full capacity, like Yantian earlier this summer.
“For container shipping, which is more than red-hot at the moment, even a brief halt in Chinese exports is likely to ease the crunch a bit logistically so long as a lockdown only closes manufacturing sectors and not ports and terminals,” commented Peter Sand, chief shipping analyst at BIMCO.
Nick Ristic, a dry bulk analyst at Braemar ACM, said the sector would not be as badly affected as it was at the start of the pandemic last year.
“Based on the experience in other countries with prolonged lockdowns, it seems the world has learnt how to keep things running with restrictions in place,” Ristic pointed out. Of greater concern for Ristic is the state of consumer demand and the underlying economy in China, which is starting to slow down.
“This could take some real steam out of the Chinese economy and manufacturing base. PMIs are already weakening too,” Ristic said.
Factory activity expanded at the slowest pace in 15 months in China last month as new orders dropped. The Caixin/Markit manufacturing PMI fell to 50.3 in July from 51.3 in June, the lowest since the covid pandemic started.
Bulk carrier congestion in China hit a five-year high of 50.5m dwt over the weekend, rising by 24% year-on-year as new restrictions were put in place in ports across the country. Current queues are 76% above the five-year average according to data from Braemar ACM as Covid-19-related protocols affect all sectors of the dry bulk market, worsening the crew change crisis in the process.
Newly reported positive Covid-19 cases in China have recently forced the country to re-introduce restrictions to curb the spread of the virus. Most ports in the country are now requiring a nucleic acid test for all crew, with vessels forced to remain at anchor until negative results are confirmed.
Many ports in the country are also requiring vessels to quarantine for 14-28 days if they previously berthed in India or performed a crew change within 14 days of arriving in China. “While it is unclear how long these measures will be in place for, they will likely tighten the dry market in the near-term,” Braemar ACM suggested in a note to clients yesterday.
Ralph Leszczynski, global head of research at Banchero Costa, like most analysts contacted by Splash, was adamant that China would not press ahead with a national lockdown. “Larger scale lockdowns would be unsustainable economically, so can happen at local level – in a single neighborhood or city, but not for whole provinces, not to mention nationwide,” Leszczynski said.
China has managed to carry out one of the largest vaccination campaigns this year, with over 60% of the population already reportedly vaccinated, and an 80% vaccination threshold likely to be reached by September or October.
“China will certainly try now to contain and eliminate the current outbreak, but if they don’t manage to do that, and it spreads uncontrollably nationwide, I think they are more likely to shift towards more of a living with Covid strategy thanks to vaccination in the autumn, similar to what Singapore has announced recently, rather than shutting down the whole country, which would be unsustainable economically and create discontent,” Leszczynski said.
Mark Williams, who heads up British consultancy Shipping Strategy, concurred with Leszczynski, telling Splash: “More likely than a national lockdown is a series of targeted lockdowns by province or county. If those lockdowns include coastal regions, key ports and logistics centres, then globalised supply chains will become chaotic.”
Commenting on the latest developments in the increasingly whacky world of hyperinflating shipping rates, Rabobank’s Michael Every made the following observations: ◾Before this surge in shipping costs, most economists thought logistics were invisible, efficient, and of no interest. Like plumbing, you need it, but don’t let it dictate your plans for the day;
◾Those logistics assumptions were only possible because since 1945 the US Navy has kept global sea lanes open and safe for all maritime traffic. Pirates and hijacking get attention today because they are 'rare' – but they did not used to be. Indeed, global sea lanes used to be carved up by empires for their preferred shipping and production, not open to all;
◾That paradigm starting to fray along with the rest of the post-WW2 global architecture;
◾Current price surges are due to massive supply-demand imbalances that are not going to go away any time soon;
◾But imagine shipping costs, and the broader implications, if we get maritime chaos in the Straits of Hormuz, around Suez, or in the South China Sea;
◾Building new maritime capacity from ship to port to warehouse to rail to truck to store to home to address our supply-demand imbalances is tied to the post-Covid economic geography: is it still a post-1945 open economy?; if not, where will things be made? We still don’t know, but we BRI vs. B3W is an example of how things are trending;
In short, Every concludes, the ship of apolitical logistics has sailed: “Just as ‘a conservative is a liberal who has been mugged’, so a ‘mercantilist is a free trader with squeezed supply chains’.”
The more expensive and delayed the shipments from China are, the better.
In all cases.
All going as planned, no doubt.
We need to stop buying crap from China.
Time for Biden to stop all flights from China.
How’s their dam?
I’m real concerned about it.
I was in a retail store recently. A clerk came up to me and asked me if I needed anything. I told her I was looking at labels. That the three items I came in to look at were all made in China, so I wouldn't be buying any of them. Then I left.
Bad news just keeps coming.
All the more reason to invest in America.
Take Biden’s $1 trillion “infrastructure” package and give it as loans to manufacturers to build factories and make stuff here in the USA.
I buy a lot from Wayfair, they always show the country of Origen but today I was looking at a throw and it only said Imported. Another way of hiding China origin. I left without buying.
Yeah well, I get your sentiment but this is bad news for most Americans and American businesses in the short term at least. So many intermediate goods used in everyday household items come out of China, or Asia. It’s not just toys and phones and computers etc.
Some of the problem is just the lack of containers. They ship so much stuff to us and we ship so little back that the containers just stack up and sit around ports for ages. No shipper wants to pay to send empty containers back to Asia but looks like they have to now, and pass that cost on. A container from China to California was maybe $1500 in 2019 and even in the first half of 2020. Then it more than tripled. Now this report says $20,000! I don’t quite believe that number but can’t say it’s not true.
I am involved in purchasing a lot of intermediate goods used in domestic production. These are items used in food, textiles, cosmetics, cleaning supplies you name it. If it involves processing it involves one of these intermediate goods and odds are they come out of Asia. A lot of these “American” companies just bring stuff in from China in bulk and repack it here. I get price increase notifications every week. Once I got 2 price increases on the same day. I just got one yesterday, price jump of 25%. One very common item I could get for 79 cents a pound a couple years ago is now close to $2/lb. We will see much higher prices in 2022, and smaller sizes on consumer goods because for the most part retailer pricing is set about a year in advance. February/March/April 2022 watch your local stores - they will be mixing up their inventory, discontinuing a lot of items due to inability to guarantee supply, and price increases pretty much across the board on everything else.
My wife bought something from a boutique, not super expensive but not cheap. She was assured by the owner of its origin. When we opened it up at home, it had a “made in China” sticker on the bottom. We took it back. They argued “why does it matter”? It matters, and, you lied.
The delta variant has broken through the country’s virus defences, which are some of the strictest in the world, and reached nearly half of China’s 32 provinces in just two weeks.
—
This makes all the quarantining of the transport ship crews rather pointless.
After almost 2 years of this crap, the “experts” can’t seem to figure out you can’t isolate from an airborne virus.
My answer n those cases is “I don’t support slavery”. It would be interesting to see how many BLM rioters wear that Nike swoop.
360 CASES -- not even deaths -- in a population of over a billion.
And delta has crested in other countries.
This is not about public health.
Big problem - China is charging $20,000 to ship a TEU to Long Beach / LA - in some cases the TEU is filled with Dollar Store Junk - the contents are not worth $20,000.
China will be stuck with all of that worthless junk that is too expensive to ship across the Ocean.
blam :" More delays and shortages.
" Bulk carrier congestion in China hit a five-year high of 50.5m dwt over the weekend, rising by 24% year-on-year as new restrictions were put in place in ports across the country.
Current queues are 76% above the five-year average according to data from Braemar ACM as Covid-19-related protocols
affect all sectors of the dry bulk market, worsening the crew change crisis in the process.
Newly reported positive Covid-19 cases in China have recently forced the country to re-introduce restrictions to curb the spread of the virus.
Most ports in the country are now requiring a nucleic acid test for all crew,
with vessels forced to remain at anchor until negative results are confirmed.
Many ports in the country are also requiring vessels to quarantine for 14-28 days if they previously berthed in India
or performed a crew change within 14 days of arriving in China.
“While it is unclear how long these measures will be in place for, they will likely tighten the dry market in the near-term,”
Braemar ACM suggested in a note to clients yesterday.
Mark Williams, who heads up British consultancy Shipping Strategy, concurred with Leszczynski, telling Splash:
“More likely than a national lockdown is a series of targeted lockdowns by province or county.
If those lockdowns include coastal regions, key ports and logistics centres, then globalised supply chains will become chaotic."
(My Comment): U.S. and foreign automobile, truck, and agricultural tractor manufacturers have already been impacted by a chip shortage,
as have also other manufacturing and production plants which depend on raw material, or perform final assembly.
"Current (shipping)queues are 76% above the five-year average", and that doesn't even allow for the possibility of any additional recent covid lockdowns.
Ancient Chinese Philosopher, Sum Ting-Wong says: FUBAR !
Worldometer:
China = 3 deaths/million.
The whole thing stinks. Even the Chinese themselves are questioning the suspension of passport issuance.
US Government, consumers and corporations spent the last 40 years maximizing debt and squeezing costs out of supply chains due to China.
That game is OVER.
I lost 3 profitable orders today because I couldn’t suppy the goods.
The most profitable line for my business is gone. In February I had a lead time of 10 to 12 weeks - it is now 10 months. I can’t commit to expensive custom goods and hope the customer who ordered them will be in business almost a year from now and I’ll get paid.
Most people have no clue as to how bad it is now, and how bad it is going to get. No amount of electronically created money can buy what isn’t available.
By the end of each day this week I have just about been sick. Come Monday the crapfest will start all over again.
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