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The global supply chain crisis is only getting worse with each passing week, but things are about to get much more nightmarish than most people can imagine. In today’s video, we are going to expose what is really driving this unprecedented shipping crisis that is impacting multiple economies across the globe and pushing inflation to record levels. As we move closer to the end of the year and the busy holiday shopping season, we’re already witnessing businesses’ desperation as supply dries up while consumer demand skyrockets. For their part, consumers are having to deal with increasingly emptier shelves and soaring prices. Meanwhile, government measures seem to only add more fuel to the fire as central banks assume this crisis is only a temporary blip, and continue to announce stimulus plans that are bound to aggravate supply and demand imbalances.
On the flip side of the coin, shipping companies are making massive profits as freight costs hit “stratospheric” levels. On the US west coast, the ports of Los Angeles and Long Beach are facing a backlog of at least 500,000 containers stuck in 75 immense cargo ships waiting for a berth. All of these containers were supposed to be carrying other goods to the other side of the ocean by now. But instead, they’re waiting up to a week to get unloaded. Many shipping companies are preferring to make the return trip with empty containers rather than waiting for them to get loaded in US ports and shipped back again.
As Peter Sands from the Baltic and International Maritime Council explained in a recent report, “years of low freight rates resulting in rigorous cost-cutting by carriers have left them in a great position to maximize profits now that the market has turned.” Now that shipping prices rose to sky-highs, this inflated market structure is here to stay.
In normal times, an uptick in consumer demand would be a positive outcome for everyone: raw material producers, manufacturers, carriers, shippers, and retailers alike. But in such troubled times, this was all a death blow to global supply chains. As Rabobank’s Michael Every underlined in a recent analysis, “due to misplaced global capacity, high export volumes cannot be moved fast enough, intermediate goods cannot reach processors in time, and everybody is fighting to get a container spot on the ships available”. “Ports cannot handle the throughput given the backlog of containers that are still waiting to be shipped inland or loaded on a delayed boat. It is not by chance that congestion hit record peaks at the same time in Los Angeles – Long beach, and in the main ports in China, the two main poles of transpacific trade,” he added.
At this moment, in Shangai and Ningbo ports there are 154 cargo ships with over one million containers waiting to unload. And now China is facing a widespread energy crisis that is only inflaming this situation. Power-cuts are taking the operations of several Chinese companies down, with many only opening 3 days a week. That is causing a major slowdown in production, shortages, further delays in loading, and making problems worse overall.
If a major conflict between the US and China arises ‘unexpectedly’, both nations could use their market size to force shipping companies to change pricing, they could hike shipping costs even more, refuse to take goods coming from foreign ships or ports, refuse to export goods for enemy nations, remove navy protections in some trade lines or force the costs of their patrols onto others, and the list of offensives goes on and on. It goes without saying that any of these measures would wreak havoc on global shipping and the global economy. “If history is a guide, geopolitics is a tsunami, and soon things will look very different on both the surface and at the deepest depths of the shipping industry and the global economy. Much we take as normal today could become flotsam and jetsam,” warned Every.
If there’s something we learned from the health crisis is that global events can escalate very quickly and the most unthinkable scenarios can become a reality faster than people can assimilate what is truly going on. The current shipping crisis is rapidly evolving into a geopolitical issue instead of a market issue, and many ports are likely to be caught up in that storm. What we’ve seen so far is just the very beginning of a much deeper crisis that will likely result in permanently broken supply chains, a collapsing container market, extensive shortages, prolonged delays, and a lot of turbulence on land and at the sea. Now more than ever it’s time to get ready for what is coming next because in the coming months we might not have that opportunity anymore.