UP FRONT 01
EDITOR’S LETTER
Trade is, fundamentally, a simple business. Someone has
delays for vessels arriving from Asia with goods for US
something somewhere in the world and, if they can sell it for
consumers and having a dramatic knock-on effect on the
a higher price somewhere else and can cover the shipping
domestic haulage business. More recently, Covid restrictions
costs, that’s what they will do. It’s a concept that’s been
at the massive container port at Yantian, China in May and
around for a long time.
June caused immense backlogs of export goods, many
A successful long-term trade flow depends, therefore, on
destined for the US market.
stability in the cost of shipping, as well as in the price at the
Such interruptions in the containerised supply chain have
point of origin and the price that the buyer is prepared to pay
been compounded by actions by the liner operators to reduce
at the other end.
spare capacity, initially to reflect falling demand, and by the
For some years now, global trade infrastructure has allowed
six-day blockage of the Suez Canal caused by the grounding
the mature markets in North America and Europe to buy goods
of the containership Ever Given, with thousands of containers
and materials from China and elsewhere in Asia, where they
ending up in the wrong place or in the right place at the wrong
can be manufactured or produced at prices that cannot be
time. Empty containers are also in short supply, or in the
matched in the buying countries. That same infrastructure has
wrong place.
also been used to supply China and other Asian nations with
One significant result of all this disruption has been a surge
the raw materials and more up-market goods that they need
in ocean freight costs. At the end of May, Drewry Shipping
or, given their increasing wealth, desire.
Consultants calculated that the rate for a 40-foot container
More recently, that established pattern of trade has been threatened. Already destabilised by the US-China trade war, further disruption arrived with the Covid-19 pandemic. Originating
from Shanghai to Rotterdam was 485 per cent higher, at more than $10,000, than a year earlier. If the cost of shipping a container rises suddenly by $8,000,
in China, it first affected the volume of exports and imports from
then the economics of the trade may well begin to look shaky.
and to that country but, as the virus spread around the world,
Many small-scale enterprises in Europe, buying goods from
it took its impact with it, causing lockdowns and a collapse in
China, now find that their profit margin has evaporated. But for
demand for all manner of goods (and a surge in demand for
chemical exporters in Europe and North America the situation
others). As a moving target, supply chains had to react nimbly to
is the same: can they still turn a profit on exports to Asia? They
try to keep goods moving from wherever they could be sourced
may have to return to shipping in parcel tankers to get a margin,
to wherever the demand (and price) was greatest.
as high container rates look likely to be here for a while yet.
But working restrictions during the Covid lockdown caused chaos at ports on the west coast of the US, leading to massive
Peter Mackay
WWW.HCBLIVE.COM
