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"Chinese Lockdowns Aggravate Shipping Crisis
As Freight Rate Spikes Trigger Panic On Supply Chains"
by Epic Economist
"The supply chain chaos continues to grow and spread at an alarming pace. Right now, ports and warehouses in China are extremely log-jammed as a consequence of strict testing protocols imposed on one of the nation’s biggest cities after an outbreak was detected a couple of weeks ago. At least 180 container vessels are still stuck at sea outside Shanghai-Ningbo, the city’s main port. Meanwhile, in Shenzhen, a major manufacturing center in the country’s south, trucking costs have jumped by 300 percent due to a backlog of orders and a shortage of drivers following the introduction of health-crisis-related restrictions. This whole situation has triggered ripple effects on US ports and supply chains, which have been plagued by prolonged delivery delays, soaring shipping costs, and exceedingly long lines of container ships waiting for a slot to unload amid the worst congestion on record.
On top of that, vessel capacity is severely strained. Given that more than a million containers that typically travel around the globe by train every day, on a route that goes from China through Russia, are now being forced to make their journey by sea due to Western sanctions, disruptions are piling up with each passing day. Supply chain experts explain that if the health crisis, which sparked an extraordinary surge on consumer demand, pushed supply chains to the edge, the worsening conflict between Russia and Ukraine and China’s zero-tolerance policies as well as continuing lockdowns, are threatening to break it completely
Several US companies are now scrambling to improve resilience and are trying to come up with new measures to prevent disruptions in their operations that result from the ongoing chaos in Chinese ports. Most solutions, however, seem impractical so far. According to an expert on foreign trade at the Center for Strategic and International Studies, William Reinsch, ideas about disentangling supply chains completely, by moving US manufacturing out of China, for instance, are unrealistic. “When everything is made everywhere, and a piece of the puzzle is suddenly not available for whatever reason, everything kind of grinds to a halt,” the expert says.
In fact, many other problems are about to simultaneously impact the U.S. Even though official numbers say that congestion has been easing in the ports of Los Angeles and Long Beach, that is happening because container ships are being required to anchor farther offshore, where they’re not visible from land, a move that is essentially cosmetic in nature, but it hides the reality in which dockworkers are having to face every day.
Right now, consumer prices are already at the highest level they’ve been in over 40 years. But to make things worse, port congestion can still push these higher costs to even more absurd levels as it drives shipping and freight rates up. The more congestion, the lower the effective ship supply and the higher the value of vessels in the freight market, explained Evangelos Chatzis, CFO of Danaos. The executive said that 25-year-old smaller feeder ships are being rented for $30,000 per day. “This is a spectacular number that we have never seen before.”
We must remember that at the end of the day, all of these shocking increases in shipping costs are going to push consumer prices to stratospheric levels. The supply chain crisis isn’t going to be fixed any time soon, and at the moment, the storm clouds on the horizon look quite menacing. The bottom line is that an already complicated picture has become even more complex, and now fears of food shortages, a worsening cost of living crisis, and soaring energy prices are about to bring unimaginable consequences and inflame civil and geopolitical tensions for the rest of the world."
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