This shipping dashboard shows why you should do your Christmas shopping early

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If it looks like shipping delays and skyrocketing delivery costs aren’t improving, it’s because they’re both getting worse.

Throughout the pandemic, the blame for disruptions in the global supply chain has shifted from Covid-19 outbreaks to container shortages, from spendthrift Americans gorging on garden tools to a huge ship washing up on the Suez Canal in March.

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These still cause problems, but there’s a new hiccup that threatens to prolong the pain, perhaps long enough to disrupt Christmas shopping: Yantian’s main export hub in the heart of the Beltway. Chinese factories were partially closed in June to control cases of the virus, reducing the limited capacity available in an industry that moves more than $ 4 trillion in goods through the global economy each year.

“The latest is the worst in terms of supply constraints,” says Steve Saxon, partner of McKinsey & Co. in Shenzhen, China. He estimates that it could be a month before Yantian is fully operational again, with the fallout spilling over to other ports.

This means container shipping rates could remain high and delivery times could stretch even further ahead of the peak restocking season in August, when retailers like to fill warehouses with late Christmas items. year.

“Right now, US importers are panicking,” Saxon says. “People are already worried about whether they will be able to have the shipping capacity in August and September, so they are trying to get their hands on the capacity they can get now.”

He expects consumer demand in the United States to remain “reasonably high” for the remainder of the year, the main question being whether a “still crunchy” supply can handle it.

“I wouldn’t predict another Suez – that looks like a real black swan,” he says. “But another port closing and reducing its capacity due to Covid is certainly predictable.”

With this dose of reality, here are six maritime signals to watch for in the second half of the year:

Port congestion. It’s not just bad off the coast of Los Angeles and Long Beach, California. Ships awaiting unloading are parked outside Singapore’s ports in Savannah, Georgia, and major European gateways for trade like Hamburg, Liverpool and Rotterdam also face bottlenecks and delays. Dozens of ships line up around Yantian and, by an estimation, more than 400,000 20-foot containers were immobilized.

So even as Yantian resumes normal operations, experts like Alan Murphy, CEO of Copenhagen-based Sea-Intelligence, said the shockwaves could be felt from afar. “There are literally hundreds of thousands of containers piling up in southern China, while other ports are already under maximum stress, and we have an acute shortage of space for ships and empty containers,” therefore the situation of the South China port is rapidly becoming massive systemic disruption, ”Murphy said in an email earlier this month.

Container tariffs. You would be forgiven for mistaking the following chart for some hot cryptocurrencies, but unlike the value of Bitcoin lately, a record high container rates only walk higher. A notice published this month by Germany’s Hapag-Lloyd AG offers some perspective: Starting July 18, it will impose a “high season surcharge” of $ 2,000 for every 40-foot container from Asia’s. East to the United States and itself is above the full rate for a container shipped on trans-Pacific routes in 2019.

The problem is, there are still not enough steel crates to meet demand on the most desirable routes, especially from Asia to the United States. With the reopening in Europe accelerating, tensions may increase. “Europe is by no means immune to capacity issues,” says Saxon. While shipping lines have deployed all their resources and ordered hundreds of thousands of new containers, these are only coming online slowly and will not alleviate much of the current capacity crisis if ports cannot handle the additional volume. .

Freight expenses. It’s not just about ships. According to Craig Fuller, CEO of information and data company FreightWaves, imports account for up to one-fifth of trucking volumes. “When you see this massive amount of imports coming into the freight market, it creates tremendous pressure in terms of trucking capacity or trucking demand,” he said at a press conference. recent episode from Bloomberg’s Odd Lots podcast. There are not enough drivers in many countries, and shortages of equipment such as chassis for transporting containers are particularly acute around ports.

Even with all the supply constraints, the freight cycle in North America “is in high growth mode,” according to the latest news. monthly report of Cass Information Systems. Its load index has reached three consecutive records and could increase further. “Orders for capital goods in the United States recently crossed a generational ceiling,” according to the Cass report. “We believe this portends an unprecedented US investment spending boom. So even as the effects of the federal stimulus wear off and consumer spending gradually returns to goods services, the extraordinarily strong recovery in U.S. freight on the network in 2021 also has longer-term growth drivers. ”

Low stocks. Some economists are speculating that as countries reopen and travel restrictions are lifted, consumers will cut back on online product purchases and go on vacation, easing the crisis in global trade in physical goods. But the pandemic is rewriting old theories. Among the business losses of Covid-19 is the just-in-time inventory model – a justified strategy if there is reliable and cheap order shipping. As the following chart shows, inventory-to-sales ratios are near historic lows. This is largely because supply cannot keep pace with demand.

Lean warehouses are no problem if you know exactly when your next container convoy will arrive. But such certainty is also rare these days, and no logistics manager wants to tell the boss they’re running out of something. So the drive to fill stocks could support demand even as people splurge on vacations and entertainment again. “As some companies seek to have higher inventories – beyond usual inventory levels – there is a risk that this will lead to further increased competition for components and raw materials that are already in short supply,” said Shanella Rajanayagam, Commerce Economist at HSBC.

Benefits of carriers. An industry is having a record year when the worst stock market performance of the lot is a 34% gain most of the way through the first half of the year. This is the performance since the start of the year of AP Moller-Maersk A / S, the Danish container line which is currently the number one player measured by overall container capacity. Amid the industry’s most profitable run to date, shares of eight other publicly traded rivals are enjoying even better years, Bloomberg data shows shares of Taiwan-based Yang Ming Marine Transport winning. the title with an increase of 416% so far. year.

Operationally, it has been a nightmare “but they have a business windfall,” says Saxon. This is a radical shift from a decade of losses, bankruptcies and mergers that have raised the playing field from about two dozen major carriers to the current concentration of around 10 that control 85% of the market. After all of this consolidation, the rate-cut wars should be less severe and capacity should be easier to match with demand, analysts say.

Shipbuilding. With all the money earned, carriers are indeed placing many more orders for new vessels. Admittedly, this is not the peak of 2008, when the order book was filled with more than 1,200 ships. Last week, Hapag-Lloyd said it was doubling to 12 the number of ships it purchases from South Korea’s Daewoo Shipbuilding & Marine Engineering Co. Each will carry more than 23,500 units of 20-foot equivalent containers. This will add capacity to the market – but not until delivery in 2024.

For an industry that is grappling with boom and bust cycles, these numbers will be interesting to follow to see if overcapacity occurs again, ushering in a possible drop in ocean freight rates. In the short term, however, shipping issues may persist. “The effects of the disruptions at Yantian will only start to be felt now and could exacerbate the existing congestion at major ports in a matter of weeks,” Rajanayagam said. “It certainly wouldn’t hurt consumers to look to buy products earlier than normal this year. ”

© 2021 Bloomberg

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