Thursday, March 17, 2022

"Shipping Crisis Aggravates As Chinese Port Shutdowns Trigger Shortages & 400% Freight Rate Spike"

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"Shipping Crisis Aggravates As Chinese Port Shutdowns 
Trigger Shortages & 400% Freight Rate Spike"
by Epic Economist

"The supply chain nightmare continues: mass business shutdowns, port closures, shipping disruptions and a three-digit spike in freight rates are likely to exacerbate shortages all over the world, but industry insiders are warning that U.S. consumers will be the hardest hit. Port congestion is back with a vengeance at China’s ports as new restrictions halt operations and interrupt manufacturing, worsening shipping delays and pushing already-elevated prices to new record-highs. At the same time, Russia’s aggression in Ukraine is heavily weighing on supply chains and agricultural production globally. All around the planet, food supplies are collapsing while food inflation is on the rise.

Shipping companies, logistic firms, and analysts are reporting that there are huge queues of container ships outside key Chinese ports right now, as a new virus outbreak in manufacturing export hubs unleashed a fresh wave of global supply chain shocks. The ship traffic jam and the container backlog continue to grow by the day, they added. Over the past week, public transportation and traffic were interrupted, and mass business shutdowns occurred as the government completely suspended all production and operation activities in an attempt to prevent the outbreak from spreading further.

In terms of logistics business, several members of the Shipping Logistics Branch of the China Transportation Association have reported that the new measures of outbreak prevention and control have led 80% to 90% of warehouses in Shenzhen to close, which is causing massive delays for cargo ships arriving at the port. With the increase of queued ships, the port will face mounting pressure as the traffic jam worsens by the day. For shipping and logistics companies, this also means another increase in operating costs.

In January alone, shipping prices went up by $16,000 on the China-U.S. West Coast route, but Unctad data shows that the latest freight rate spike was much higher than that. According to Peter Sand, Chief Analyst at Xeneta, a freight analytics firm, consumers in the U.S. and shippers with cargo going for North America will be hardest hit. Furthermore, over the past few weeks, the conflict between Russia and Ukraine has rippled through global crop markets, with major food producers warning that they won’t be able to offer grains to the global market this year as they ensure domestic supplies, while others won’t have means to harvest crops and distribute their products at all.

The new bottlenecks come at a time when global crop prices have already surged to historic levels, fueling inflation and hunger crises, while grain stockpiles have been shrinking all over the planet. Meanwhile, in the U.S., food is still in short supply, as consumers all across the nation can see with their own eyes. Analysts are alerting that food shortages might drag on for years. According to a new analysis published by RetailWire, food insecurity was already on the rise in the U.S. due to "various factors, including lower domestic production, wildfires, natural hazards, climate change and pests."

Adding increased transportation costs, labor shortages, supply chain snarls to that picture, it’s safe to say that U.S. food supply chains have never faced so much pressure. And conditions are set to aggravate this year given that our domestic supply of fertilizers is down by as much as 50%, and we’re in the middle of a conflict with the world’s biggest fertilizer exporter. Food insecurity is going to shake our country to the core in the coming months. And we will be extremely lucky if things do not start to fall apart in our economy and financial markets before that happens. Trouble is ahead, it's time to start planning a way out of this mess while you still can."

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