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’.”
Take Biden’s $1 trillion “infrastructure” package and give it as loans to manufacturers to build factories and make stuff here in the USA.
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It mostly a GOP package and its $1.2 trillion, which adds $250 billion to the debt; the other package is the $5.5 trillion Democrat infrastructure package (commonly and erroneously referred to as $3.5 trillion) of which only billions are earmarked for infrastructure as most think of that. That Dem package includes 31 brand spanking new taxes, and no way to pay for the thing.
If you imagine that the US can build factories like the Chinese ones, well we can ... but we would need, on average, 100,000-200,000 employees each. Name a city that has that many spare workers - ones looking for work, will actually show up, arrive on time, and stick around more than a week or month.
We will have to buy all the manufacture equipment that our CEOs and GOV sent to China. We can’t produce our own crap anymore. If all imports from China stopped today it would be panic / fires in the streets here in 3-5 days.
Americans are phenomenally resourceful. Look at what we produced during WWII. Overnight factories sprung up. We need to get our pharmaceuticals moved back ASAP, American entrepreneurs would be smart to start building now.
Yeah. Maybe we should make our own stuff again? YES WE SHOULD....
A form of a tariff. LIKE!!!
Make it here. Do it now.
If you ever made one penny off of importing form China then I hope you and yours end up impoverish beggars.
Astronomical shipping costs from China?
Good!
As far as I am concerned if there are COSCO containers in the deck we should be sinking the ships.
Kicking heroin is bad news in the short term, too.
All of them do. Pay and they will come. Imagine the economic boon to all!!!
I still believe in American ingenuity and workforce YOU DON'T.
Mass produce goods are cheap to make not matter where it is done. IT IS A MATTER OF DEGREES OF CHEAPNESS.
I call BS. What static thinking.
If we go hot over Taiwan the only good that will come of it is the end of trade with Red China. Nixon was an A$$.
I wish I had said that.
All of them do. ... I still believe in American ingenuity and workforce YOU DON’T.
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No US city has 200,000 **extra** workers. Have you been paying attention? Its hard enough for employers to find ANY one willing to work, let alone fill existing jobs.
I never said what I believe or don’t. Please stop trolling.
We'll continue to buy goods from them as long as they're cheaper than ours.
We'll also continue to blame China for our problems at the same time we beg them to sell us more.
It would be hard to find a better example of the inexorable power of (perceived) economic self interest.
You pulled 200,000 out of your butt.
Listen you ignorant fool, if you want to sell anything and feed your family in this country you won’t do it selling only American-made goods. Don’t blame it on me, blame it on the government people have been voting for, for the last sixty years I suggest you quit using anything made outside the United States and see how long you live.
I’ve been selling for 45 years and the availability of American-made goods has dropped off the cliff. And yet somehow the need to pay my rent and feed my family hasn’t.
Anyone that thinks the economic ties to China have been nothing but a disaster is an idiot and fool. Make it here, do it now.
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