Another Shipping Nightmare Is About To Play Havoc With Global Supply Chains

News Image By Tyler Durden/Activist Post August 16, 2021
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Yesterday we reported that with container shipping rates already blowing out to never before seen levels amid continued chaos in Transpacific shipping as a result of massive port backlogs and production delays in China due to the relentless onslaught of covid, a new and even greater price surge was on deck.

An outcome which would nuke hopes for renormalization in soaring inflation - as a result of the partial (for now) shutdown of China's busiest port by volume (and third-largest container port in the world after Shanghai and Singapore) when operations at the Ningbo Meishan Container Terminal, were immediately suspended following positive Covid test results.

Well, it didn't take too long for Bloomberg to report that the spread of the delta variant could "lead to a repeat of last year's shipping nightmares", and for confirmation look no further than the Port of Los Angeles, the nation's busiest post, which in June saw its volumes dip because of a Covid outbreak at the Yantian port in China, and which is bracing for another potential decline because of the latest shutdown at the Ningbo-Zhoushan port in China, a spokesman said.

Anton Posner, chief executive officer of supply-chain management company Mercury Resources, said that many companies chartering ships are already adding Covid contract clauses as insurance so they won't have to pay for stranded ships.

And here is the core problem with all those endorsing a "transitory" inflation spike captured in a perfect soundbite: just when it seemed as if things were just starting to calm down, "and we're now into delta delays," said Emmanouil Xidias, partner at Ifchor North America LLC. "You're going to have a secondary hit."

And then a tertiary, then quaternary, and so on because after Delta - we have Lambda, and then a whole lot of other Greek letters, ensuring that the "pandemic" persists at least through the Nov 2022 midterm election which - for obvious reasons - will have to be mail-in, and thus the pandemic will have to last at least until then.

Meanwhile, prices are about to go into the stratosphere: the shutdown at Ningbo-Zhoushan is raising fears that ports around the world will soon face the same kind of outbreaks and Covid restrictions that slowed the flows of everything from perishable food to electronics last year as the pandemic took hold. 

Infections are threatening to spread at docks just as the world's shipping system is already struggling to handle unprecedented demand with economies reopening and manufacturing picking up.

The good news so far, Ningbo-Zhoushan Port said in a statement late on Thursday that all other terminals aside from Meishan have been operating normally, and that the port is actively negotiating with shipping companies, directing them to other terminals, and releasing information on a real-time data platform.

To minimize delays, it's also adjusting the operating time of other terminals to make sure clients can clear their shipments. A spokesman for the port told Bloomberg there were no further updates when contacted Friday.

Despite the port's cheerful take, some ships that docked at the Meishan terminal before the closure have suspended cargo operations until the terminal re-opens, according to a notice sent by shipping line CMA CGM SA to shippers. 

Other vessels which usually call at the Meishan terminal will stop at the Beilun terminal instead, according to a statement Thursday from A.P. Moller-Maersk A/S. One of the company's ships will skip Ningbo next week, it said.

"We are working on contingency plans in order to mitigate the likely impact on our vessel schedules and cargo operations," Orient Overseas Container Line, a subsidiary of Orient Overseas International Ltd. container subsidiary said via email.

While Ningbo city which hosts the busiest port in the world is still considered a low risk virus area, at least according to the city's health commission, flights to and from the capital Beijing have been canceled.

And herein lies the rub: authorities in Ningbo said the port worker was fully vaccinated with an inactivated vaccine and had the second dose on March 17. The worker was asymptomatic as of Thursday afternoon despite the "breakthrough" infection. 

He was infected with the delta strain, genetic sequencing showed, and epidemiological investigation shows the worker had come into close contact with sailors of foreign cargo ships. In other words, if Delta really is that contagious, all hell is about to break loose not only in Ningbo but across global shipping lanes.

Meanwhile, as Chinese shippers brace for the worst, they are busy daytrading various hyperinflationary indicators such as the Baltic Dry Index which serves as a global benchmark for bulk shipping prices, and which is up more than 10% since a month ago as the delta variant began to spread rapidly. 

As shown in the chart top, container prices also have soared, with the benchmark cost of shipping a container from Shanghai to Los Angeles up more than 220% over the past year to $10,322 this week. And if the Ningbo port closure escalates, those numbers are about to go exponentially higher.

Finally, commenting on the emerging shipping chaos, Rabobank's Michael Every ties it in to the latest wholesale inflation data, writing this morning that "the US PPI print yesterday laid bare the surge in input costs still coming through the pipeline, most notably in that while the headline was up 1.0% m/m, almost double expectations, and 7.8% y/y, the core component ex- food and energy also spiked 0.9% m/m and 6.2% y/y. 

As we have already seen in China, somebody is going to have to swallow that. Will it be producers, compressing their margins? Or will it be consumers, depressing their real incomes? 

Considering around 25% of capacity at China's third-busiest port just closed down again due to Covid-19, which will push global shipping further past its limits just as the US needs to restock for Black Friday and Xmas, the one thing that does not seem likely is a rapid drop-off in supply-side inflation."

Originally published at Activist Post - reposted with permission.

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