The Rising Influence of Rising Affluence

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Global supply lines brace for ‘menacing’ economic storm to widen

https://economictimes.indiatimes.com/small-biz/trade/exports/insights/global-supply-lines-brace-for-menacing-economic-storm-to-widen/articleshow/90508218.cms

On top of the wartime setbacks, omicron outbreaks are widening China’s use of strict lockdowns in major trade hubs, the latest in Shanghai. A.P. Moller-Maersk A/S, the world’s No. 2 container carrier, said Monday that some depots serving local ports have closed indefinitely, and trucking to and from terminals will be “severely impacted.”

Economists at Barclays on Monday said the world is entering a new era of higher volatility for growth and inflation. Allianz Research on Friday warned of a greater risk of a “double whammy” in world trade — lower volumes and higher prices — in 2022. Clarksons Research, a shipping analytics firm in London, last week trimmed its projections for global trade this year and next, saying its port congestion indexes are rising again and the latest shocks are “amplifying an already disrupted maritime transport system.”

According to data compiled by Bloomberg, the German ports of Hamburg and Bremerhaven saw new highs in ship congestion this month, while Rotterdam, the continent’s busiest gateway for container traffic, saw its vessel backup at the start of the month reach an 11-month high.

The snarls make any return to normal unlikely this year unless demand unexpectedly craters. Ocean shipping, the workhorse for some 80% of global trade, was stretched so thin that the spot rate to send a 40-foot container of goods to the U.S. from Asia averaged more than $10,000 in the second half of last year — about seven times higher than the pre-pandemic level. Those rates have come down in recent weeks, but experts say the reprieve probably reflects a seasonal lull before transport demand and costs pick up again.

Even greater than the risks Russia’s war in Ukraine pose to global supply fluidity are the Covid-19 cases and targeted lockdowns in China, according to economists Ana Boata and Françoise Huang at Euler Hermes, a unit of Allianz Group. They see a risk that container freight prices approach or even exceed their previous peaks, before returning to current levels by year end.

“Overall, even if not returning to the peaks of 2021, the cost and congestion levels of global supply-chains are likely to remain high for most of 2022,” Boata and Huang wrote in an email. “The normalization may start more visibly only from 2023.”