I didn’t expect to do another supply chain disruption update just two days after the last one, but there’s a lot more news popping up:
Residents in three north-east Chinese provinces experienced unannounced power cuts as the electricity shortage which initially hit factories spreads to homes.
People living in Liaoning, Jilin and Heilongjiang provinces complained on social media about the lack of heating, and lifts and traffic lights not working.
Local media in China – which is highly dependent on coal for power – said the cause was a surge in coal prices leading to short supply. As shown in the chart below, Chinese thermal coal futures have more than doubled in price in the past year.
There are several reasons for the surge in thermal coal, among them already extremely tight energy supply globally (that’s already seen chaos engulf markets in Europe); the sharp economic rebound from COVID lockdowns that has boosted demand from households and businesses; a warm summer which led to extreme air condition consumption across China; the escalating trade spat with Australia which had depressed the coal trade and Chinese power companies ramping up power purchases to ensure winter coal supply.
Then there is Beijing’s pursuit of curbing carbon emissions – Xi Jinping wants to ensure blue skies at the Winter Olympics in Beijing next February, showing the international community that he’s serious about de-carbonizing the economy – that has led to artificial bottlenecks in the coal supply chain.
There are over 60 container ships full of import cargo stuck offshore of Los Angeles and Long Beach, but there are more than double that — 154 as of Friday — waiting to load export cargo off Shanghai and Ningbo in China, according to eeSea, a company that analyzes carrier schedules.
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.
Snip.
A major driver of congestion on both sides of the Pacific Ocean: Landside capacity (terminals, trucking, rail, warehousing) is limited, but the vessel capacity of a single ocean trade lane is highly flexible.
While the number of ships in the world is finite, operators can shift ships to wherever they make the most money. And the trans-Pacific is now a particularly lucrative trade: Spot rates including premiums can top $20,000 per forty-foot equivalent unit (FEU).
“These assets [ships] are super-mobile,” said Sundboell. “What’s happening now is the opposite of what dogged the industry for the past 20 years. Five years ago, people were asking: How can the trans-Pacific rate drop from $2,000 to $1,500 [per FEU] in the space of just six days? It was because you could take a vessel from one place and sail it someplace else, and suddenly there were more ships and a price war and rates dropped.
“Now we’re seeing the opposite,” he said. As ship operators pile more capacity into the trans-Pacific, congestion rises, delays mount, the incentive for shippers to pay premiums is supported, and all-in rates remain at record highs.
Despite the backlog, the busiest U.S. port still shuts down for hours on most days and is closed on Sundays, the Wall Street Journal reports. “Tens of thousands” of containers remain stuck at the ports of Los Angeles and Long Beach. More than 60 ships are lined up to dock, the report says.
More than 25% of all American imports pass through one of the two ports. LA and Long Beach collectively manage 13 private container terminals. Long Beach officials finally said last week they would try operating 24 hours a day between Monday and Thursday. LA says it’s going to keep existing hours and wait for the rest of the supply chain to extend their hours first.
The Global Supply Chain is a &#$*ing Mess—in 4 JPM graphs
1. Dozens of containerships stacked up outside LA
2. Shipping rates to the moon
3. Global delivery times at 25-yr highs
4. Our surging demand for WFH and home improvements imports —> wild surge in eastbound freight rates pic.twitter.com/feeEzZKz7U— Derek Thompson (@DKThomp) September 27, 2021
Keep in mind: None of the supply chain issues are the result of Flu Manchu, but almost all are the result of government overreaction to it.
Tags: China, coal, coronavirus, Economics, Energy Policy, natural gas, Regulation, Russia, supply chain, UK
LA and Long Beach have problems besides not being able to unload fast enough. They can’t get the containers on trucks or trains fast enough. In part because the trucks and trains aren’t avaliable. The west coast ports are even at the point where they don’t have space to stack the containers without reducing their ability to off load more containers.
It was not an overreaction. It was a planned crisis. The troubles are intentional. The disruption intentional.
The question is: who benefits? When you answer that, you will make more sense that as if they just “happened” through bad choices.
I worked many years in the meat industry. When we first went to vacuum packaging of primals the old guard still thought productivity was gained by pushing meat through at the front end of the line. The result was a total malfunction in the packaging and boxing areas down line. The only way to think of such an operation is as if there is a giant vacuum cleaner at the end sucking the product through faster then it can be cut. Same here. You have to start at the warehouse level – get trucks unloaded and turned around, get empty containers returned, empty out the yard and then do not unload ships any faster than you can clear the yard. Otherwise it just ends up grid lock and further delays.
I’ve also heard that the workers at the port are not/can not/will not work around the clock. You would think if this was a crisis they wanted to solve, Americans would work together to work around the clock to clear the bottleneck and get product out to the market and trades that need them.
We’re governed by nincompoops.
Mention should be made of the abandonment as in rails and ballast ripped up and bridges’ being ripped out and oeirs dynamited of the Chicago Milwaukee St. Paul & Pacific’s transcontinental route in 1980 and after. It functioned weakly for 73 years and three bankruptcies; people thought it should go–but boy could we use another line from the Pacific Northwest! Wage rates and labor contracts at work in LA and San Diego areas and probably the entire west coast. Even Canada got rid of one of its transcons, the Kettle Valley Route, in the 1960’s. Bad planning combined with the labor Mexican Standoff.
Someone might be able to make some money here bringing smaller ships to smaller US ports, say New London CT or Philadelphia. Having looked at West Coast maps years ago there are very few ports ANYWHERE on the West Coast. Brunswick GA could have Big Dreams again just like they did in the late 19th century!
The shortage of drivers is also caused by environmental restrictions on older trucks and restrictions on hiring contractors in CA.
Interestingly enough, the Los Angeles Container Port does ***not*** operate 24×7.
https://www.wsj.com/articles/port-of-los-angeles-stops-short-of-24-hour-operations-unlike-long-beach-11632506723
[…] 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 […]
“…a surge in coal prices leading to short supply…”
Leave it to the commies to get supply and demand completely backwards.
[…] I probably won’t be doing daily or weekly updates, but this guy will keep you informed if you bookmark his site. Supply Chain Disruption Update for September 28, 2021 […]
They are getting containers off ships but there are no chassis on which to drop them to get them away from the port. An acquaintance in the industry has posted several videos of lined up “bobtails” (think the tractor part of a tractor-trailer) waiting for container chassis. Where have the chassis all gone? In one of the videos they are dragging the chassis-less steel containers across the concrete to move them out of the way. Strange days….
A surge in coal prices leading to a shortage in supply? That’s new and different.
Try – a trade embargo on Australian coal, leading to a shortage and a surge in onshore prices.
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