Why freight rates have surged, Beijing hopes U.S. will scrap Tariffs, Biden scrutinizes supply chain
April 26, 2021
Monday Morning Wake Up Call
Shipping during COVID-19: Why container freight rates have surged
(UNCTAD) When the Ever Given megaship blocked traffic in the Suez Canal for almost a week in March, it triggered a new surge in container spot freight rates, which had finally started to settle from the all-time highs reached during the COVID-19 pandemic.
Shipping rates are a major component of trade costs, so the new hike poses an additional challenge to the world economy as it struggles to recover from the worst global crisis since the Great Depression.
“The Ever Given incident reminded the world just how much we rely on shipping,” said Jan Hoffmann, head of UNCTAD’s trade and logistics branch. “About 80% of the goods we consume are carried by ships, but we easily forget this.”
Container rates have a particular impact on global trade, since almost all manufactured goods – including clothes, medicines and processed food products – are shipped in containers.
“The ripples will hit most consumers,” Mr. Hoffmann said. “Many businesses won’t be able to bear the brunt of the higher rates and will pass them on to their customers.”
A new UNCTAD policy brief examines why freight rates surged during the pandemic and what must be done to avoid a similar situation in the future.
Abbreviations: FEU, 40-foot equivalent unit; TEU, 20-foot equivalent unit. Source: UNCTAD calculations, based on data from Clarksons Research, Shipping Intelligence Network Time Series.
Contrary to expectations, demand for container shipping has grown during the pandemic, bouncing back quickly from an initial slowdown.
“Changes in consumption and shopping patterns triggered by the pandemic, including a surge in electronic commerce, as well as lockdown measures, have in fact led to increased import demand for manufactured consumer goods, a large part of which is moved in shipping containers,” the UNCTAD policy brief says.
Maritime trade flows further increased as some governments eased lockdowns and approved national stimulus packages, and businesses stocked up in anticipation of new waves of the pandemic.
“The increase in demand was stronger than expected and not met with a sufficient supply of shipping capacity,” the UNCTAD policy brief says, adding that the subsequent shortage of empty containers “is unprecedented.”
“Carriers, ports and shippers were all taken by surprise,” it says. “Empty boxes were left in places where they were not needed, and repositioning had not been planned for.”
The underlying causes are complex and include changing trade patterns and imbalances, capacity management by carriers at the beginning of the crisis and ongoing COVID-19-related delays in transport connection points, such as ports.
Rates to developing regions skyrocket
The impact on freight rates has been greatest on trade routes to developing regions, where consumers and businesses can least afford it.
Currently, rates to South America and western Africa are higher than to any other major trade region. By early 2021, for example, freight rates from China to South America had jumped 443% compared with 63% on the route between Asia and North America’s eastern coast.
Part of the explanation lies in the fact that routes from China to countries in South America and Africa are often longer. More ships are required for weekly service on these routes, meaning many containers are also “stuck” on these routes.
“When empty containers are scarce, an importer in Brazil or Nigeria must pay not only for the transport of the full import container but also for the inventory holding cost of the empty container,” the policy brief says.
Another factor is the lack of return cargo. South American and western African nations import more manufactured goods than they export, and it’s costly for carriers to return empty boxes to China on long routes.
How to avoid future shortages
To help reduce the likelihood of a similar situation in the future, the UNCTAD policy brief highlights three issues that need attention: advancing trade facilitation reforms, improving maritime trade tracking and forecasting, and strengthening national competition authorities.
First, policymakers need to implement reforms to make trade easier and less costly, many of which are enshrined in the World Trade Organization’s Trade Facilitation Agreement.
By reducing physical contact between workers in the shipping industry, such reforms, which rely on modernizing trade procedures, would also make supply chains more resilient and protect employees better.
Shortly after COVID-19 struck, UNCTAD provided A 10-point action plan to keep ships moving, ports open and trade flowing during the pandemic.
The organization has also joined forces with the UN’s regional commissions to help developing countries fast-track such reforms and tackle trade and transport challenges made evident by the pandemic.
Second, policymakers need to promote transparency and encourage collaboration along the maritime supply chain to improve how port calls and liner schedules are monitored.
And governments must ensure competition authorities have the resources and expertise needed to investigate potentially abusive practices in the shipping industry.
Although the pandemic’s disruptive nature is at the core of the container shortage, certain strategies by carriers may have delayed the repositioning of containers at the beginning of the crisis.
Providing the necessary oversight is more challenging for authorities in developing countries, who often lack resources and expertise in international container shipping.
To Read More: https://unctad.org/news/shipping-during-covid-19-why-container-freight-rates-have-surged?fbclid=IwAR199BwTcZ2rkxCDwrP0n6-W0tgHEj4TZ4hFmLVEsqSUZhWRksWVPE-lTjw
Beijing Hopes U.S. Companies Will Push to Scrap China Tariffs
(Bloomberg) China hopes U.S. companies will press their government to cancel additional tariffs on China, cease “decoupling” and supply suspension, and stop suppressing Chinese companies, a top diplomat said.
Xie Feng, a vice minister of foreign affairs, made the comments during a meeting with officials from major U.S. companies last week.
He said that American companies are stakeholders in Chinese-U.S. cooperation, according to a statement posted on the ministry’s website.
Competition between the world’s two largest economies should be more a track-and-field competition than a life-and-death gladiatorial confrontation, he said.
Among those participating in the April 22 meeting were officials from the American Chamber of Commerce in Shanghai, General Motors, Ford Motor, Walt Disney, Delta Air Lines, United Airlines and UPS.
To Read More: https://www.bloomberg.com/news/articles/2021-04-25/beijing-hopes-u-s-companies-will-push-to-scrap-china-tariffs
Biden launched a 100-day review of supply chains
(Propmodo) Nearly all of us agree much of American infrastructure needs to be upgraded or, in many places, replaced. Bipartisan congressional groups are now quibbling about the price tag of President Biden’s proposal. Right now it is looking like $2.3 trillion dollars will go towards the American Jobs Plan, which the media has dubbed “the infrastructure bill,” but in a construction market plagued by a lack of construction workers and record-high material prices, $2.3 trillion won’t go as far as you think. The Biden Administration could be in for sticker shock if the supply and demand of construction material don’t balance before building.
This year alone construction companies will need to hire 430,000 more workers than in 2020, according to U.S. Bureau of Labor Statistics data released today by Associated Builders and Contractors. Those numbers do not account for Biden’s infrastructure plan, which plans to create millions of new construction jobs across the United States.
Factoring an infrastructure plan passing leading to a higher job growth rate means nearly 1 million construction workers could be needed this year. Building the workforce needed to implement a nationwide construction plan will likely increase workers’ average salary, limiting the effectiveness of the massive government spending. Creating high-paying jobs is part of Biden’s infrastructure plan but cost-effective spending will be crucial to successful implementation.
“The skilled trades are in dire need of workers right now, with a particularly high demand for apprentice-level and skilled labor positions. These are steady, well-paying jobs that hold a bright future, even in an unpredictable economic climate,” said Jill Quinn, executive leader of PeopleReady Skilled Trades. “For the millions of Americans who are struggling in their job hunt right now, our message is simple: Consider a career in the skilled trades.”
Then there are materials, which are currently experiencing a price shock. Infrastructure projects need enormous amounts of steel, iron, and concrete, which the United States does not produce enough domestically to supply. The global pandemic, President Trump’s trade policies, hamstrung suppliers, and sky-rocketing demand have had practically every construction material spiking. Iron and steel prices are up 45 percent and 36 percent respectively. Copper wire and cable prices are up 18 percent and 11 percent. Concrete prices are up 20 percent. Lumber is going crazy, some types are up triple digits. Despite the ability to buy in bulk at an unfathomable scale to get better pricing, prices like these severely limit the federal government’s purchasing power.
“The latest round of material price increases and availability concerns have only heightened our need to employ creative solutions to minimize these impacts,” Josh Lawrence, vice president of preconstruction and chief estimator at McCarthy Building Cos., told Engineering News-Record.
It’s not too late for the Biden administration’s plan to succeed. The key will be straightening out material supply chains quickly to bring supply and demand back into balance. To do this Biden launched a 100-day review of supply chains critical to national security, public health, and public safety. The Biden Administration has been hosting meetings with industry executives to iron out issues. Many of the supply chain woes are beyond the White House’s control. Global shipping is being slowed by more than one blocked canal. Ships with supply sit anchored all across the globe, waiting for back-logged personnel to unload them. A shortage of shipping containers has exacerbated the problems as pandemic trade routes twist global trade’s steady back-and-forth motion.
The prospect of massive government infrastructure spending itself will help to balance supply and demand for material and workers. Producers have an extra incentive to keep the furnaces lit longer and workers are more eager to supply labor when wages rise. High prices could also boost domestic production, helping the United States to be more self-reliant, especially if the Biden administration ‘Buy American’ directive is fully implemented in his infrastructure plan.
“It’s large, but we’ve got a large problem,” Moody’s Analytics Chief Economist Mark Zandi told CNN host Jake Tapper. “The current amount of investment we’re doing is barely, barely enough to keep pace with just the maintenance of the infrastructure. The package is large, but the need is very large.”
The stock market is already anticipating a windfall from Biden’s infrastructure plans. Global X U.S. Infrastructure Development ETF, which invests in businesses that benefit from infrastructure activity, is up 21 percent year to date. The ETF has had returns close to 92 percent over the past 12 months. Stock in Freeport-McMoRan, the world’s largest copper producer, is up roughly 29 percent year to date. Martin Marietta Materials, a supplier of aggregates like sand and gravel is up about 22 percent. Stock in one of America’s largest steelmakers, Nucor, is up almost 50 percent. The possibility of more than 200 million tons of cement being needed to build Biden’s infrastructure plan has shares of US Concrete up 62 percent in 2021.
Biden’s plan is far from a done deal. First, Congress will need to decide the definition of what infrastructure is before it decides how (or if) the plan will be paid for. At least half of the plan’s elements don’t actually claim any relationship to infrastructure as most people understand it. Negotiations on Capitol Hill have only just begun, with Republican lawmakers counter offering a $600 billion plan that focuses on traditional infrastructure and is paid for in part with unspent COVID relief money. However, it’s possible Democrats pass the plan without a single Republican vote, just like they did with the last COVID-19 spending bill. As D.C. politicians jockey, America waits, watching our infrastructure fade before our eyes and under our feet.
To Read More: https://www.propmodo.com/biden-infrastructure-plan-faces-harsh-construction-market/
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