No Minister

The Shipping News

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I’ve been seeing comments from several New Zealand importers, in public and on Social Media, talking about the disruptions in global supply chains caused by the Xi Snot Virus.

The JP Morgan website has an interesting article on the subject, complete with graphs showing the dramatic changes in various ways. Here are just two:

But it’s even worse on the other side of the Pacific:The number of container ships anchored off Shanghai and Ningbo has surged over recent weeks. There are now 242 container ships waiting for berths countrywide. Whether it’s due to heavy export volumes, Typhoon Chanthu or COVID, rising congestion in China is yet another wild card for the trans-Pacific trade.

The inevitable result:

Whatever the reasons for this you would think the ports would be going gangbusters to try and clear these backlogs, but you would be wrong; they’re one of the reasons:

Despite the backlog, the busiest U.S. port still shuts down for hours on most days and is closed on Sundays, the Wall Street Journal reports. “Tens of thousands” of containers remain stuck at the ports of Los Angeles and Long Beach. More than 60 ships are lined up to dock, the report says.

More than 25% of all American imports pass through one of the two ports. LA and Long Beach collectively manage 13 private container terminals. Long Beach officials finally said last week they would try operating 24 hours a day between Monday and Thursday. LA says it’s going to keep existing hours and wait for the rest of the supply chain to extend their hours first.

The JP Morgan article argues that there are two fundamental reasons at play here, neither of which is a surprise:

COVID has disrupted supply chains in two major ways: surging demand for imported consumer goods in the West due to pandemic work from home trends and other home improvement spending, and a decline in workers required to maintain and operate these supply chains.

But the result of that first factor was a surprise to me, even though I’d posted on one aspect of it with automobiles (No Chips, No Motion):

Semiconductors are the world’s 4th most traded good after crude oil, refined oil and cars. Strong demand existed before COVID and reflected the chip-intensity of 5G, AI, electric vehicles (3-5x the chip content of ICE cars) and the internet of things. Current chip shortages are mostly related to older and simpler 200-nm silicon wafers used in cars, computers, monitors, laptops, TVs, refrigerators and washing machines. Demand for many of these items soared during the pandemic as people built out home offices and related projects

If you’re wondering what “older and simpler” chips means, the latest ones going into laptops and such are ones with 3nm (nanometres) thick “wiring”. The 200nm jobs are perfectly fine for non-IT devices or some functions within a computer. Being older of course they’re also more common, cheaper and less profitable, which means it’s tough to expand factory manufacturing of them.

One of the strange aspects of these supply chain problems with containers is that it’s not a two-way street across the Pacific, even though the backlogged ports in China and the USA might make it seem that way:

Same with Shanghai to Rotterdam.

The surge in US import demand has led to a sharp rise in eastbound freight rates (see charts for Shanghai->LA and Shanghai->Rotterdam). However, westbound freight rates have not risen nearly as much, leading to an odd and problematic phenomenon: incentives for container owners to move them back to China empty to accelerate receipt of eastbound freight rates, instead of waiting for containers to be refilled to earn westbound freight rates as well. 

What that means in practice is that US export goods are left sitting in warehouses while these empty (or mostly empty) containers rush back across the Pacific, which in turn means that they’re taking up storage space for imported goods, leading to more import supply problems from all the stuff heading from China to the USA.

Markets eh? What a bloody mess. The good news is that it will sort itself out. The bad news is that it might take a year to do so as the problems and their fixes move through the whole chain. Read the whole JP Morgan article as it analyses other supply chain problems, like a lack of workers due to Covid-19 vax issues and US government Covid-19 subsidies for the “unemployed” in terms of both income and housing.

Written by Tom Hunter

October 10, 2021 at 3:07 pm

2 Responses

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  1. One thing not mention in the analysis is most of the critical chips are made in Taiwan Just one company, . TSMC is over 50% of the market.
    Something to bear in mind about the Chinese invation threats.

    Chris Morris

    October 10, 2021 at 8:00 pm

    • Heh, check the link I put in to a previous post (No Chips, No Motion) to see the chart on Taiwan and chip production. Scary.

      Tom Hunter

      October 10, 2021 at 8:48 pm

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