Supply Chain Crisis Will Not End Anytime Soon – Part 3

Supply Chain Crisis Will Not End Anytime Soon - Part 3

Originally published on Jan. 8, 2022 by TraderStef at CrushTheStreet

Since the end of 4Q20, the global economy has been hit by a growing supply chain crisis to acquire materials for the manufacture of goods and distribution of finished products. If you’re new to this issue, you can get up to speed by reviewing parts 1 and 2. The interconnectedness of the global supply chain is very complex, with a broad array of factors and consequences that include but are not limited to the pandemic’s evolution and lockdowns, employment disruption, labor availability, just-in-time inventory management, e-commerce trends, transportation costs, oceanic shipping, land freight transportation networks, trucking shortages, legacy regulatory framework, trade wars, trade imbalances, the recent industrial crackdown in China to conserve and lower energy expenses, and asymmetric inflation due to monetary policy and supply/demand volatility.

The shortage of products at your local grocery chain or delays at automotive part suppliers for your mechanic are not the result of one big issue at maritime ports. It is a multitude of little things that built up over many years and came home to roost as the pandemic’s consequences hardened its grip around the globe. One release valve that was utilized to relieve pressure on U.S. West Coast ports was the redirection of shipping to East Coast facilities. The port of New York and New Jersey (NYNJ) is now experiencing its own berthing bottleneck despite a new gauge of global supply-chain disruptions from the Federal Reserve Bank of New York that claims shipping and supply chain issues are at their peak.

Wave of Imports to Port of NYNJ 2020-2021…

Port of New York New Jersey Wave of Imports 2021

NYNJ Port Traffic 2017-2021…

New York New Jersey Port Traffic 2017-2021

Port of New York and New Jersey reports busiest November… “The Port of NYNJ set a new record high in container volumes for the month of November, by moving 2.8% more cargo than the previous monthly record, set in 2020. Particularly, the major port in the United States has handled 759,390 TEU in November, which was the ‘16th month in the row of record-setting cargo activity,’ according to a statement. In addition, container traffic for November 2021 was elevated by nearly 27% from November 2019, according to NYNJ port’s data. However, despite the fact that November 2021 hit a record, cargo activity was down by 4.7% vs. October 2021, when the seaport achieved an all-time monthly record by moving 796,704 TEU.” – Container News, Jan. 3

Containergeddon Hits New York As Covid Cases Spike… “The Port of NYNJ is working to clear a bottleneck of container ships anchored off the coast of Long Island as Covid-19 cases among dockworkers collide with a pandemic-fueled surge in cargo volumes… ‘We have seen a spike in the number of labor going out into quarantine,’ Port Authority Director Sam Ruda said… The average wait at anchorage was 4.75 days in the final week of 2021, compared with an average of 1.6 days for 2020… The NYNJ port terminals, the busiest on the East Coast, have largely avoided backlogs like those gripping Los Angeles and Long Beach, California where scores of vessels are still running into delays of more than three weeks to offload… The NYNJ port has been running at full capacity for almost two years, handling almost 27% more volume in Nov. 2021 than it did in Nov. 2019” – gCaptain, Jan. 8

There are no indications of any great improvement on the West Coast despite redirections to East Coast ports and the Biden administration’s efforts to relieve pressure. The average wait time for berthing hit a record of 23.4 days during the first week of Jan. 2022 vs. 20.9 on Dec. 1.

Los Angeles import volume sinks, shipping traffic jam worsensFreight Waves, Dec. 15

Port of Los Angeles Container Ship Wait Time…

Port of LA Container Ship Wait Time

The cost to transport each container via an oceanic shipping vessel is on the rise after some relief in 4Q21.

“Drewry’s World Container Index composite index increased 1.1% to $9,408.81 per 40ft container, and is 80% higher than the same week in 2021. After a steady decrease in rates on transpacific lanes since mid-September 2021, we now see the rates increasing for the 5th consecutive week. Freight rates from Shanghai – Los Angeles and Shanghai – New York gained 3% each to reach $10,520 and $13,518 per 40ft box respectively. Similarly rates from New York – Rotterdam surged 5% or $57 to reach $1,244 per feu.”

Drewry’s Composite World Container Index as of Jan. 8, 2022…

Drewry World Shipping Container Index Jan. 8, 2022

The HARPEX Charter Rates Index reflects worldwide price developments in the charter market for container ships. Harper Peterson is involved in a broad range of shipbroking and commercial chartering services for container vessels of all sizes.

HARPEX Index Jan. 2020 to Jan 2022

Container shipping’s 2022 outlook: The bulls, bears and wild cards… “Never has container shipping begun a year on such a high. The Shanghai Containerized Freight Index hit a new record in the last week of December, up 76% year on year and topping 5,000 points for the first time. There were 101 container ships waiting for berths in Los Angeles/Long Beach on Sunday, very close to the peak. Trans-Pacific spot rates quoted for this month are higher than in December, which were higher than in November. Annual contract rates are up sharply in 2022. According to the latest data from Xeneta, Asia-U.S. contract rates are up 122% from 2020, pre-COVID, with bids in early negotiations of 2022 contracts averaging $5,700 per forty-foot equivalent unit.” – American Shipper, Jan. 3

The continuation of elevated shipping rates will translate into stagnant or inflated pricing for the production and delivery of finished goods, and companies will continue to pass on that cost to consumers. An additional issue taking place and looming on the high seas’ horizon is a variable of the Great Resignation. Quits and retirements of seafarers are on the rise and expected to escalate in the near future due to international border challenges and their experience of being stranded on vessels throughout the pandemic.

Exodus of Seafarers Could Add to Supply Chain Disruption in 2022… “Seafarers have faced endless challenges due to the Covid-19 pandemic… Out of the 1.5 million seafarers serving at sea, barely a quarter are vaccinated… This means that most seafarers face procedural obstacles to crew change in many localities, as governments change immigration policies or close borders due to the omicron surge… Tens of thousands of seafarers are still stuck onboard vessels beyond expiry of their contracts… The endless challenges in the pandemic era translate into low morale – and signs that many experienced mariners are thinking of quitting the industry altogether. The Seafarers Happiness Index report for 3Q21released in December by The Mission to Seafarers, includes somber narrations by crew wanting to abandon their careers in sailing. ‘It is said that pain is a great teacher – and sadly, it seems to be teaching seafarers that perhaps a career at sea is not for them. We heard from a growing number of respondents who stated that they will be completing their trip and not coming back, or who are throwing themselves into finding a new job,’ noted the report.” – Maritime Executive, Dec. 29

Truckers in the U.S. are also fed up since 2.5 million of them are threatening to quit if vaccine mandates bleed into their industry. A shortage of truck drivers is already taking place that factors into the delays of delivering goods from port facilities to warehouses and distribution to retail outlets. Although, there is an unexpected issue that will put a fork in supply chain analyses going forward. There is a steady increase in the average inventory buildup at warehousing operations that’s been growing since 2019. What might be overlooked are the small and medium retail businesses that began hoarding products due to availability warnings going into the 2021 holiday season and beyond.

Inventory ‘Bullwhip’ Risk Emerges in Latest U.S. Logistics Index… “While the latest reading for the main measure released Tuesday fell in December, it stayed for an 11th straight month above the 70-level considered to reflect significant expansion… Unusually, inventories rose during the final month of the year, when most companies clear out merchandise during the holiday rush. The December reading for inventory levels was 61.6, compared with 56.8 a year earlier and well above the 42.3 registered in December 2019… That’s raising concern about economic distortions that systems theorists called the “bullwhip effect,” when businesses — often acting irrationally — struggle to match orders with purchases. Such effects can make it harder to predict the direction of prices as companies try to realign supply with demand… The survey noted that widespread shortages were largely avoided despite dire predictions of a gloomy Christmas.” – Bloomberg, Jan. 4

U.S. Inventory Levels as of Dec. 2021

The consequences from a multitude of geopolitical hotspots and the political circus in the U.S. are unknown at this time. No matter what you read or hear, it is prudent to keep your pantry stocked with bullets, beans, and bullion until this global mess resolves itself at some point in the future. Rumor has it that the revolution taking place in Kazakhstan is due to pandemic restrictions that include a vaccine passport to shop for food and conduct banking in person. The exponential increase in fuel prices was just the spark.

Documentary: Global Supply Chain, Current Crisis & Future – Texin, Jan 5

Plan Your Trade, Trade Your Plan

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