Keeping Watch on the World Economy’s Supply Chain Problem
Bloomberg | August 25, 2021
A "temporary" supply chain crunch now looks like it will last well into next year. With shortages and higher raw material and energy costs, manufacturers are being forced into bidding wars to get space on vessels, pushing freight rates to records and prompting some exporters to raise prices or cancel shipments.
“Port congestion and a shortage of container shipping capacity may last into the fourth quarter or even mid-2022,” said Hsieh Huey-chuan, president of Taiwan-based Evergreen Marine Corp., the world’s seventh-biggest container liner. “If the pandemic cannot be effectively contained, port congestion may become a new normal.”
China’s determination to stamp out Covid has meant even a small number of cases can cause major disruptions to trade. In the U.S., forecasters have lowered growth projections for this year and lifted inflation expectations into 2022, according to Bloomberg’s survey of economists. Compared to a year earlier, the personal consumption expenditures price index is now expected to rise 4% in the third quarter and 4.1% in the fourth, double the Federal Reserve’s 2% goal.
Some 60% to 70% of shipping deals on the Asia-America route are done through spot or short-term deals, according to Michael Wang, an analyst at President Capital Management Corp. He said auction-style pricing may continue until Chinese New Year in February 2022.
Chinese companies that spent decades shifting production of lower-value components to cheaper labor markets in South and Southeast Asia now face the headache of trying to get those parts to factories where they can be assembled into finished products. Some have resorted to air-freighting materials to factories to keep production lines rolling.