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"Global Economy Heading For "Mother Of All"
Supply Chain Shocks As China Locks Down Ports"
by Epic Economist
"Economic optimists have been betting on a stronger US growth for 2022 - something that may never actually materialize. Global events are suggesting that we're heading into an alarming growth slowdown. And the place where this growth slowdown is already emerging is China, our biggest trade partner. The country's strict health policies have locked down several ports over the past few weeks, as a new outbreak is spreading across the country right ahead of the Winter Olympics.
A recent report by Bloomberg disclosed that the effects of the new restrictions are already having a severe impact on the supply chain region of the nation. And as a result of the slow movement of goods, with some of China's busiest and most important ports completely shutdown, shippers are now diverting vessels to Shanghai, and that's causing the types of knock-on delays at the world’s biggest container port that provoked massive congestion and disruptions last summer.
Sailing schedules are already facing delays of over a week, and freight forwarders are warning that congested ports in the US and in several countries in Europe will suffer from even worse backlogs and traffic jams this year as conditions deteriorate in Chinese ports. For that reason, HSBC economists are alerting that the world economy is headed for the “mother of all” supply chain shocks, as the highly contagious new variant of the virus spreads across Asian countries, and most notably in China, resulting in severe disruption to manufacturing plants. "Temporary, one would hope, but hugely disruptive all the same," they wrote in a research note this week referring to the recent port shutdowns.
Over the past two weeks, scattered infections cases have already sparked shutdowns to clothing factories and interrupted gas deliveries in one of China’s biggest seaports in Ningbo. It also caused further disruptions at computer chip manufacturing plans in the locked-down city of Xi’an and led to another citywide lockdown in Henan province. Right now, according to Russell Group, a risk modeling consultancy, each week of the closure of China's Ningbo port is disrupting approximately $4 billion worth of trade. Amongst the hardest-hit industries are the $236 million integrated circuit board industry, which is essential to the production of all types of electronics, and the $125 million clothing industry, including companies like Nike and Adidas, the consultancy added.
Ningbo is one of the main ports for Chinese exports to be sent to the US, having exported more than $385 million worth of goods in the first eight days of January, the Russell Group estimated. It's also the third-largest container port in the entire world. One of the key catalysts to the new interruptions is the health-crisis-induced shortage of dockworkers at several U.S. terminals. Right now, the number of container ships waiting for berths in Southern California is once again nearing a record high.
Just yesterday, at least 150 ships were either in port waters or queueing in deep seas outside the coast of Mexico waiting for a slot to enter the ports of Los Angeles and Long Beach. Ship-positioning data from MarineTraffic confirms that the backlog is so large that some of these vessels are lining up to 150 miles to the west of the ports, all the way into the Baja peninsula. Today, there are more than three times as many container ships waiting for a berth at the Los Angeles and Long Beach ports as there were at the same time last year, and 11.6 times more than in June, and 31% more than in October. Of course, the traffic jam isn’t just affecting Los Angeles and Long Beach. As of midday today, MarineTraffic data showed heavy congestion in the ports of Oakland, San Francisco, Seattle, Tacoma, Houston, Charleston, Virginia, New York, and New Jersey, bringing the total backlog of container ships to over 200.
One industry executive with the firm FINAT warned that “what we experienced in 2021 was only the beginning of a prolonged trend of global supply chain disruptions that is about to explode in 2022”.“Currently there are shortages of almost everything: energy, chemicals, pulp, paper, plastic, inks, transport, laminates, chips, components, and people,” he added. There are major challenges emerging all across the board, and we’re only in January. Unfortunately, this means that if the shortages and price increases of 2021 were already painful, what we’re going to experience in 2022 is nothing short of horrifying."
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