• The congestion at Chinese ports threatens to give inflation another boost

The global shipping industry is going through a very turbulent period. Maritime trade was already strained and reeling from the pandemic crisis, and this was later compounded by inflationary pressures and delivery delays. Now, it appears to be facing its greatest test of resilience yet: the congestion at China’s ports—theworld’s factory.

The story dates back to May, when the Port of Yantian—one of China’s busiest—announced that it would not accept new containers for exporting goods due to a COVID-19 outbreak. The port was supposed to be back in operation within a few days, but its reopening has been delayed. As the partial closure dragged on,trade routes became increasingly congested, causing freight rates—the fees paid to ship goods from one place to another—to skyrocket.

Authorities at the Port of Yantian say operations will return to normal by the end of June. Although a return to normalcy at the port seems assured, the damage has already been done, according toBloomberg. To illustrate this situation, we need to look back at the major blockage that occurred in the Suez Canal in Egypt. It took several weeks for shipping schedules and supply chains to recover after the ship that blocked the Suez Canal in March was freed. Now it could take months for the cargo piling up in southern China to be cleared, while the ripple effects spread to ports around the world.

"The trend is concerning, and the relentless congestion is becoming a global problem," said A.P. Moller-Maersk, the world's largest shipping company by number of containers, in a statement on Thursday.

The situation in southern China is just one more "in a series of disasters that have piled up in the global supply chain," according to Nerijus Poskus, vice president of ocean strategy and carrier development at Flexport, which develops software that helps companies manage their supply chains. This expert estimates that it will take between six and eight weeks for the congestion in Yantian to clear up.

These delays will create a critical problem because the disruptions will coincide withthe peak demand period in late summer in the U.S.and Europe, when retailers and other importers restock their warehouses ahead of the year-end holiday shopping rush.

Typically inexpensive and invisible to businesses and consumers, maritime shipping—which is now more expensive than ever—has become a double-edged sword for the global economy: it acts as a drag on trade and a potential driver of inflation.

In the U.S. on Wednesday, the Federal Reserve raised its inflation forecasts, in part because supply has been unable to keep pace with demand, leading to bottlenecks.

Data from Drewry Shipping released on Thursday reveals that container rates on several routes continued to rise, with the cost of shipping goods between Rotterdam (Netherlands) and ports in China now nearly seven times higher than it was a year ago.

Ships that have been diverted

Although the situation at the Chinese port is improving, as of Wednesday there was still an average wait time of 16 days, according to a statement from Maersk, which has announced that it will reroute most of its ships to other locations in June.

But the route change by Maersk and other companies will likely only add to the congestion and delays at nearby ports, according to the statement. Shipping costs are spiraling out of control and driving up the prices of goods rangingfrom coffee to toys.

Even without the blockade in the Suez Canal or delays at ports, the global transportation system would likely be operating very close to its maximum capacity. Exports from China and other Asian nations are at record levels, as the U.S. and European economies reopen and other markets, such as India, purchase medical supplies to help manage their ongoing outbreaks.

China's trade boom shows no signs of slowing down, with exports reaching record levels in May, while the third and fourth quarters are typically the most important periods for trade during the year.

"There are bottlenecks at ports around the world due to COVID outbreaks: people aren’t coming to work in the same numbers and aren’t working at the same pace as before the pandemic,” says Bjorn Hojgaard, CEO of Anglo-Eastern Univan Group, a company that manages the operations of a fleet of 700 ships worldwide, ranging from tankers to bulk carriers and container ships.

"The shipping industry is taking longer to recover thanwas expected a few months ago, but I am hopeful that, as we enter the fourth quarter of 2021 and the first quarter of 2022, we will see a resumption of activity in many parts of the global economy and, undoubtedly, a return to normalcy regarding some of the challenges we face in the shipping industry," the expert states.

Via ElEconomista.com