COVID: rebirth of the global supply chain crisis

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According to Bloomberg, the global supply chain crisis is exploding back where it all began. The ports of Shanghai and, tentatively, that of Beijing, affect the trade of $22 billion in global goods that faces months of serious interruptions in transport.

China’s strict rules to curb covid-19 are about to trigger another wave of chaos in the supply chains between Asia, America and Europe.

Zero tolerance by the Chinese government in Beijing amid a growing virus outbreak brings the pandemic full circle, more than two years after its appearance in Wuhan these new measures will upend the world economy, says Bloomberg. Shipping congestion at Chinese ports, combined with Russia’s war in Ukraine, risks delivering a one-two punch that threatens to derail the recovery, already battered by inflationary pressures and headwinds to global economic growth.

Even if the virus is brought under control, disruptions will spread globally, stretching through 2022, as stalled cargo ships start sailing again.

“We expect a bigger disaster than last year,” Jacques Vandermeiren, chief executive of the Port of Antwerp, Europe’s second busiest by container volume, said in an interview. “It will have a negative impact, and a large negative impact, throughout 2022.”

China accounts for about 12% of global trade and COVID restrictions have paralyzed factories and warehouses, slowed truck deliveries and exacerbated container bottlenecks.

US and European ports are already overwhelmed, leaving them vulnerable to additional shocks. “Once product export activities resume and a high volume of vessels head to US West Coast ports, we expect wait times to increase significantly,” said Julie Gerdeman, CEO of supply chain risk analytics firm Everstream Analytics.

In the short term, the bottlenecks spelled headaches for the $22 trillion global trade market, which slumped in 2020 and rebounded last year. In the longer term, such chaos will change the contours of a global economy united by cross-border trade. For some corporate executives, remote production networks will move to being a business necessity given all the uncertainty.

“This has accelerated the pressing need for supply chains to become more regional,” Lorenzo Berho, chief executive of Vesta, a Mexican developer of industrial buildings and distribution centers, said in a conference call last week. The shift to shorter supply chains to places like Mexico is underway to reduce exposure to Asia. Berho said: “Globalization as we know it may be coming to an end.”

Leading policymakers are realizing that a sea change in the supply lines of the developed world is necessary, Bloomberg says in his article. US Treasury Secretary Janet Yellen calls her idea of ​​tougher trade ties “supporting friends,” a not-so-subtle jab at China and Russia. Much of the change hinges on whether the pandemic has convinced consumers to accept higher prices for products made closer to home, and at least one consultant’s analysis says it has, Bloomberg counters.

Relocating supply chains “could cost more, but if you can make smaller quantities that you can then sell at closer to full price, it can actually be a complete game changer,” says Brian Ehrig, a partner at the consulting firm Kearney from a report this month that found 78% of CEOs are considering relocating or have already done so. Shay Luo, a director at Kearney who helped write the report, added: “My bet is that globalization will never die, however it will evolve into a different form,” reports Bloomberg.

Businesses have weathered the harshest bouts of supply shocks over the past year, in part by raising prices, and consumers have largely absorbed this big hit. In the short term, however, supplies from China pose a more threatening cloud than questions about household demand.

Bloomberg mentions that Tesla Inc. lost about a month of work during the Shanghai lockdown. Retailer Bed Bath & Beyond Inc. earlier this month reported an “abnormally high” level of inventory in transit, unavailable or held at ports during the first part of this quarter. Alcoa Corp., the aluminum giant that is a benchmark for the global economy, last week blamed shipping jams for rising inventories. Continental AG, Europe’s second-largest auto tire maker, lowered its growth forecast for global production of passenger and light commercial cars to a range of 4% to 6%, from 6% to 9% previously.

On the other hand, Wang Xin, director of the Shenzhen Cross-Border E-Commerce Association, an organization representing some 3,000 exporters, said that although the lockdown in that Chinese tech hub lasted only a week, “many sellers are experiencing a delay in a month’s delivery.”

Products still take an average of 111 days to reach a US warehouse from the time they are ready to leave a factory in China, very close to the record 113 in January and more than double the average trip in 2019, according to Flexport Inc., a San Francisco-based freight forwarder. The journey west to Europe takes even longer: almost a record 118 days.

The longest queues of ships seen off the coast of China are breathtaking. The line of ships soared after Shanghai, home to the world’s largest container port, began a city-wide lockdown late last month to combat COVID-19 cases. The total number of container ships in port and out at anchor, which is shared with the port of Ningbo, stood at 230 vessels last Wednesday, an increase of 35% from this time in 2021, according to data from Bloomberg shipping.

Imported containers wait an average of 12.1 days at the port of Shanghai before being picked up by a truck and delivered to inland destinations, according to data from Project44. In April, the average was 18 days, almost triple the 4.6 days on March 28. Truck shortages have crippled efforts to supply key inputs to factories and transport goods such as cars and electronics to ships.

To ease congestion around Shanghai, travel is being diverted to Ningbo and Taicang, according to Donny Yang, Dimerco’s shipping director, to Bloomberg. At the same time, the central government has instructed that the roads be kept open and unobstructed.

According to Bloomberg, automakers and electronics manufacturers in China’s financial hub have gradually resumed operations as authorities now use confined-work systems, where workers live in their factories.

Still, ramping up production after a shutdown is not an instant process. Tesla has restarted its Shanghai factory after a three-week shutdown, though it is not known how long the plant will be able to operate with a limited supply of components and staff, Bloomberg said.

“The change in Covid prevention policies in different cities has imposed an extraordinarily severe impact on logistics,” said Cui Dongshu, secretary general of the China Passenger Car Association.

For their part, economists at Goldman Sachs Group Inc., in a research note last week, said supply chain setbacks “have been somewhat worse than we anticipated, and we have slightly adjusted our forecasts for growth and inflation in response in recent weeks.” From this, Bloombleg says that when the bottlenecks in Asia start to clear, a container rush is likely just as a seasonal uptick in imports begins.

“Some companies may have already tried to ship their orders elsewhere or have canceled them,” said Stephanie Loomis, vice president of international procurement at freight forwarding company CargoTrans Inc. “But I guess we’ll see a huge backlog of orders. load”.

The total count of container ships anchored in the Port of Los Angeles & Long Beach reached at least 57 vessels last Wednesday, the highest since late February. Some other indicators, such as container dwell times, are also rising again, Bloomberg replies.

It also reports that some of the California backlog has simply shifted east in search of faster routes: Freight shipments are lining up from New York City to Charleston, South Carolina. According to data recently shown by MarineTraffic, there is a major shift: the US East Coast has overtaken the West Coast in the number of shipping containers waiting at anchor to be offloaded.

The bottlenecks in the supply chain in Europe are just as bad or worse, made worse by the proximity of the war in Ukraine. Key ports such as Rotterdam, Hamburg, Antwerp and three in the UK are working at or above capacity, meaning they are already struggling to accept more containers because they don’t have room to store them, Bloomberg says.

European Central Bank President Christine Lagarde said in a speech on Friday that Europe’s integration into global value chains was even deeper than that of the United States. Trade as a percentage of euro zone gross domestic product rose to 54% in 2019 from 31% two decades earlier, she said, compared with the United States’ rise of 3 percentage points to 26%, she reports Bloomberg.

Bloomberg also cites a recent survey that found that 46% of German companies get significant input from China. Of them, almost half plan to reduce that dependency. The invasion of Russia now means that the search for the lowest-cost providers must be refocused on geopolitical alliances.

“We must work to make trade safer in these unpredictable times, while building on our regional strength,” said Lagarde, a former managing director of the International Monetary Fund. “Even industries that are not considered strategic are likely to anticipate the breakdown of the world trade order and adjust production on their own,” Bloomberg details in her article.

Source: Bloomberg

Source Bloomberg

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