These dips show the impact of zero COVID.
The chart that you are looking at shows future
bookings from shippers here in the United States, from
all ports of China to all ports in the US.
Zero-covid has become one of the select drivers of global
recession, of the threat of global recession.
If a company is relying on China for any type of
material or for manufacturing, they're going
to be impacted when it comes to the dynamic COVID
and the closures that are ensued as well as the
testing.
If you slow China down, the world slows down.
If you stop China, the world panics.
So why China is so important in terms of global supply
chains? Well, China is actually the world's largest
exporting economy and the world's second largest
importing economy. So a huge amount of trade comes
in and more importantly, out of China.
And when you look at the world's top 20 ports, eight
of them are in China.
So China is really the origin when it comes to the
supply chain for numerous countries around the world
technology, retail, automobiles, these are just
some of the industries that rely on China.
Maybe you got an iPhone, maybe there's an electric
vehicle or a Tesla on your drive.
Maybe it's the clothes in your wardrobe or the toys
that your kids are playing with. There's a good chance
that a majority of them have come from or through
China.
So trade is a series of pipes, and a lot of people
have this conception that trade is just about the
port. There are many different pipes that feed
into the port that enable trade to flow.
So when you look at China and the various pipes, if
you will, the biggest concerns that you have are
the availability of the container. So you can grab
that container to get filled.
But more importantly, is there a truck that's able to
move that product either off the terminal or to the
terminal so it can be loaded?
Wuhan went into the world's first COVID lockdown.
And more than two years later, Chinese cities,
including the capital Beijing, still use the same
tactics to stop the spread of the virus.
China instituted zero COVID from the very first days of
the outbreak in Wuhan.
The controls have not been able to succeed in the way
they have in the past.
What are the main ports that we're talking about here?
The top three are Ningbo, Shenzhen and Shanghai.
And I want to just focus on Shanghai for a second.
Shanghai isn't just China's manufacturing hub.
It's really the world's manufacturing hub.
It handles about 40% of the goods that go out of China.
And we've already seen all of those three go into zero
COVID lockdowns over the last year, and the
disruption has been quite substantial.
China's ports are automated, unlike here in the United
States, and so they are very efficient and they're
able to circumvent any type of disruption because they
don't have a lot of people moving the containers.
They have driverless cars or trucks, rather, that move
the containers. And so when it comes to vessel schedule,
a vessel can still get in and out in a day or two.
And remember, with the pandemic, it impacted
people. And so if you don't have people available to
move the trucks because they're in quarantine or
because they have numerous testing sites they have to
adhere to before they get to their final destination,
it's going to slow things down.
Manufacturing hub Shenzhen mandated its biggest
companies to operate in a closed loop with workers
living on site.
Shanghai ordered similar arrangements for warehouses
for steel, halting work for three days.
Frustrations continue to grow with the restrictions,
but no relief in sight.
What you're seeing is multiple concurrent
outbreaks migrating around the country, disrupting the
economy, putting upwards at one point in this early
summer 400 million people under under severe lockdown.
Now, Shanghai is a very large city and amongst the
city there are various neighborhoods. You can have
different testing sites that a driver has to go
through in order to get to their final destination.
I've spoken with SEKO Logistics, who is a provider
for the CNBC supply chain heatmap, and they have told
us that, you know, what would normally be, say, a
one day trip or a two day trip can now be an upwards
to 5 to 7 days.
The consequences are not just the impact upon China's
economy, upon the workforce, upon consumers,
upon the exports, upon supply chains, all of which
have been massively disrupted. The projected
growth rate for the year was 5.5%.
They're going to fall far short of that.
What's happened over the last two years is that we've
seen prices for ocean freight go through the roof.
So those stories of a sort of ten x 20 X increase on
occasion are true.
When it comes to ocean freight rates, there are two
different ways that a shipper can purchase a
container price. And so the first is negotiating a long
term contract, which really is only about a couple of
months to even a year with an ocean carrier directly.
Or you can go on the spot market and buy a price that
can lock you in for one container for that specific
frame in time.
But unfortunately, because of the congestion at the
ports of the United States as well as in Europe, the
congestion has actually restricted the amount of
vessels that are available and more importantly, the
containers that are available for use.
Really, what supply chains thrive on is predictability.
It's that lack of predictability, which is
really hurting businesses at the moment, which is also
driving some of the conversation around
reshoring, near shoring, etc.
Can we reach more predictable models?
And the only thing we can say about China at the
moment is that for many businesses, they're looking
at China as being predictably unpredictable.
In China, you have acute vulnerabilities.
You have a population that has no protection through
infection. You have a large population that elderly in
particular acutely vulnerable that are not
protected. The vaccines that have been introduced
are far less effective and you do not have mass access
to paxlovid.
So what that means is that the Chinese leadership, when
they look at the prospect of reopening, they're a bit
frozen in their in their place by fear, by fear of
unleashing a virus into a population that is so
acutely vulnerable, overwhelming the health
system, and rapidly seeing upwards of a million people
die.
This is an inflationary pressure that the consumer
pays for. Logistics prices have always been tacked on
to the price of a good.
And with this congestion and with this increased
prices, even though that we've seen a pullback, if
you will, in the consumer and future orders, the
congestion is still either fueling up the price or
holding that price up.
And that means that the inflationary pressures on
the consumer will continue.
Things have improved a little bit over the last six
months. If you look at the three year contract rate or
the spot rate, both are a little bit improved on where
they were in 2020.
But if you look at them versus 2018, it's pretty
grim reading.
So most businesses are getting better at coping
with these lockdowns, and I think they're just accepting
that now that this is a fact of life, a fact of
doing business with a low cost country, or in
particular doing business with China.