Focus: Global Trade Faces Container Shortages

Focus: Global Trade Faces Container Shortages

by Dr Natalija Riabko – Head of Commodities, Sinowei

Focus: Global trade faces container shortages

There is a sharp increase in rates for different directions by two to five, or even ten times on the market of sea container transportation in communication with China. A number of operators stopped accepting orders for shipments. This new factor is superimposed on the pre-New Year’s demand increase and the pandemic.

The imbalance of China’s trade with the United States and Europe, when flows from the China many times exceed the counter flows, has worsened, and empty containers have accumulated in large quantities in North America. The situation is already affecting medium-sized businesses for which the freight price has become prohibitive, and may lead to an increase in the cost of goods and delivery time.

Carriers and logisticians working with China talk about a sharp rise in container shipping prices. There is a shortage of containers on the China-Russia route. Maersk has removed online booking from the site. Sinokor will suspend booking for the entire December. Some of the lines have already announced the stop booking situation. Among them one of the largest container carriers – CMA CGM, which at the end of November stopped accepting applications until the end of the year. On average, the price for sea transportation of one 40-foot container from China has grown twice.

Small factories that work with China are forced to suspend production because the new freight rates. In connection with the situation with freight rates, importers are considering the possibility of completely revising the logistics and sending goods by rail.

The SCFI (Shanghai Container Traffic Index) has reached its highest level in eight years.

In monetary terms, exports from China are three times higher than imports from the United States. For nine months of 2020, the volume of container traffic from North America to Asia decreased by 14%, and in the opposite direction – increased by 12%. Many containers are on the way or in regions that have not yet returned them to Asia. Shipping lines are being used for redeploying empty containers.

The volume of supplies to the countries of Southeast Asia (SEA) decreased not only from the United States, but also from Canada and Mexico, as well as from India and Europe. The shortage of containers in China and other Southeast Asian countries is the main reason for the sharp rise in prices for sea shipments. During the pandemic, most shipping lines have reduced or cancelled part of their expeditions to maintain margins against the backdrop of a significant drop in trade volumes and, accordingly, in sea freight rates.

Experts believe that the return of any significant number of containers to China can be expected no earlier than January. The cost of other types of transportation is also growing( for example, of air transportation).

Crops Market

Wheat and Corn

According to Chinese authorities, the rise in Chinese imports of corn and wheat is not related to the rise in world grain prices. They attributed the rise in prices to the ongoing coronavirus pandemic and uncertainties over food security. Export restrictions and the accumulation of food supplies have led to a jump in world prices. Even with the rise in world grain prices, China has boosted its imports as it strives to meet the terms of the first phase of its trade deal with the United States as the country’s pig population recovers from the African swine fever outbreak.

Wheat

Chinese buyers are struggling to purchase low-gluten wheat for the fast-growing bakery market as exporters of the main supplier, Australia, shy away from selling to Chinese buyers amid escalating trade tensions. The unusual dodging of grain sales to the Chinese market is taking place despite one of the largest harvests in history and strong demand from China. Meanwhile, China purchased about 386 000 tons of U.S. white wheat since June, the largest volume since 2017 (according to the USDA).

According to Rabobank, agricultural commodities markets will start 2021 with high prices which could continue to grow. Prices of wheat, soybeans and corn could increase the most, while increased global demand due to the coronavirus pandemic could continue to put upward pressure on wheat. Rabobank predicts that the 2021/22 season could bring a surplus to the global wheat market, but La Niña is likely to continue to challenge for global wheat production.

Prices for the main varieties of Australian wheat offered in Asia remain mostly unchanged, even though the country raised its production forecast due to strong world demand. Australian Premium White Wheat (APW) price is around $ 275/t (C&F) to Southeast Asia, almost unchanged from last week. Likewise, higher protein Australian Prime Hard (APH) wheat is priced between $ 290 and $ 295 per ton (C&F), while Australian Standard White (ASW) wheat is priced at around $ 270 per ton.

Sunflower Seed

Active exports keep sunflower prices high. The decline in sunflower harvest in the main producing countries of the Black Sea region intensified the competition for this commodity not only among Ukrainian and Russian processors, but also among exporters who despite the high export duty increased their purchases.

The increase in export volumes supports sunflower prices which are 70-80% higher than last year’s level, primarily due to a sharp rise in world prices for vegetable oils (by 30-40%), an increase in the dollar against the Ukrainian hryvnia by 10-12% and a decrease in sunflower harvest by 20%. This year, Ukraine harvested 13.1 million tons of sunflower, and Russia – 13.2 million tons while last year each country harvested 15.5 million tons.

Since the beginning of the season, purchase prices for sunflower seed have increased from 380-400 $ / t to 660-670 $ / t.

According to Refinitiv Trade Flows, during September – November 2020, Ukraine almost doubled its sunflower seed exports compared to the same period last year to 190 thousand tons, and Russia – by 95% to 500 thousand tons.

The reason for the sharp increase in exports was the reduction in sunflower production in Bulgaria, Romania, and Turkey which this season have become the main buyers of Ukrainian and Russian sunflower seed.

Currently, the export duty on sunflower seed in Ukraine is 10%, and in Russia – 6.5% but not less than 9.75 € / t. However, from January 1, the Russian authorities are planning to increase the export duty on sunflower seeds to 30%.

Meat

Pork: Prospects of the Chinese market opening for Russian pork

If the Chinese market opens up for Russian pig breeders, the export of this meat could grow by more than 50% – from 200 thousand tons this year to 300 thousand tons in 2021. If not, exports could grow at a relatively low rate of 10–20% due to increased supplies to current markets and gradual penetration into new secondary markets.

Chinese authorities make statements that China is ready to consider both regionalization issues and product tracking through Russian information systems “Mercury”. On the other hand, after the outbreak of ASF in Germany, China completely stopped the supply of pork from this country. Germany is now making tremendous efforts in negotiations with Asian countries to recognize regionalization for ASF. If this happens, it will facilitate negotiations for Russia as well.

The issue of the epizootic situation will be a priority for China. The concessions from China are not expected.

This year, Hong Kong and Vietnam have become the largest importing countries of Russian pork, which together account for 60% of all pork Russian exports. Russian pork access to the Vietnamese market was opened at the end of 2019. And during 2020, domestic manufacturers quadrupled shipments to Vietnam.

Beef: Growth in demand from China supported the rise in prices of Brazilian livestock

South America continues to struggle with dry conditions throughout the region. In Brazil, cattle prices rise as slaughter levels begin to decline after two years of drought (in the third quarter of 2020 cattle slaughter decreased by 11% compared to the third quarter of 2019). Growth in demand from China supported the rise in prices of Brazilian livestock due to the growing demand for Brazilian beef in China. Brazilian meat processing plants are expected to scale back their capacity to accommodate a shrinking supply of cattle that could offset price increases.

In terms of percentage, the increase in the price of cattle in Brazil is comparable to that in Australia. Given the volatility of markets through 2020, this increase in prices from the world’s two biggest suppliers of beef could be a shock for import markets.

Sources : Refintiv, Rabobank, European Commission, CME, USDA

Is China winning?

Is China winning?

THIS YEAR started horribly for China. When a respiratory virus spread in Wuhan, Communist Party officials’ instinct was to hush it up. Some predicted that this might be China’s “Chernobyl”—a reference to how the Kremlin’s lies over a nuclear accident hastened the collapse of the Soviet Union. They were wrong. After its initial bungling, China’s ruling party swiftly imposed a quarantine of breathtaking scope and severity. The lockdown seems to have worked. The number of newly reported cases of covid-19 has slowed to a trickle. Factories in China are reopening. Researchers there are rushing candidate vaccines into trials (see Briefing). Meanwhile, the official death toll has been far exceeded by Britain, France, Spain, Italy and America.

China hails this as a triumph. A vast propaganda campaign explains that China brought its epidemic under control thanks to strong one-party rule. The country is now showing its benevolence, it says, by supplying the world with medical kit, including nearly 4bn masks between March 1st and April 4th. Its sacrifices bought time for the rest of the world to prepare. If some Western democracies squandered it, that shows how their system of government is inferior to China’s own.

Some, including nervous foreign-policy watchers in the West, have concluded that China will be the winner from the covid catastrophe. They warn that the pandemic will be remembered not only as a human disaster, but also as a geopolitical turning-point away from America.

That view has taken root partly by default. President Donald Trump seems to have no interest in leading the global response to the virus. Previous American presidents led campaigns against HIV/AIDS and Ebola. Mr Trump has vowed to defund the World Health Organisation (WHO) for its alleged pro-China bias. With the man in the White House claiming “absolute power” but saying “I don’t take responsibility at all”, China has a chance to enhance its sway.

Even so, it may not succeed. For one thing, there is no way to know whether China’s record in dealing with covid-19 is as impressive as it claims—let alone as good as the records of competent democracies such as South Korea or Taiwan. Outsiders cannot check if China’s secretive officials have been candid about the number of coronavirus cases and deaths. An authoritarian regime can tell factories to start up, but it cannot force consumers to buy their products. For as long as the pandemic rages, it is too soon to know whether people will end up crediting China for suppressing the disease or blaming it for suppressing the doctors in Wuhan who first raised the alarm.

Another obstacle is that China’s propaganda is often crass and unpleasant. China’s mouthpieces do not merely praise their own leaders; some also gloat over America’s dysfunction or promote wild conspiracy theories about the virus being an American bioweapon. For some days Africans in Guangzhou were being evicted en masse from their homes, barred from hotels and then harassed for sleeping in the streets, apparently because local officials feared they might be infected. Their plight has generated angry headlines and diplomatic rebukes all over Africa.

And rich countries are suspicious of China’s motives. Margrethe Vestager, the EU’s competition chief, urges governments to buy stakes in strategic firms to stop China from taking advantage of market turmoil to snap them up cheaply. More broadly, the pandemic has fed arguments that countries should not rely on China for crucial goods and services, from ventilators to 5G networks. The World Trade Organisation expects global merchandise trade to shrink by 13-32% in the short run. If this turns into a long-term retreat from globalisation—which was already a worry before covid-19—it will harm China as much as anywhere.

More fundamental than whether other countries are willing to see China supplant America is whether it intends to. Certainly, China is not about to attempt to reproduce America’s strengths: a vast web of alliances and legions of private actors with global soft power, from Google and Netflix to Harvard and the Gates Foundation. It shows no sign of wanting to take on the sort of leadership that means it will be sucked into crises all across the planet, as America has been since the second world war.

A test of China’s ambitions will be how it acts in the race for a vaccine. Should it get there first, success could be used as a national triumph and a platform for global co-operation. Another test is debt relief for poor countries. On April 15th the G20, including China, agreed to let indebted nations suspend debt payments to its members for eight months. In the past China has haggled over debt behind closed doors and bilaterally, dragon to mouse, to extract political concessions. If the G20’s decision means the government in Beijing is now willing to co-ordinate with other creditors and be more generous, that would be a sign it is ready to spend money to acquire a new role.

Perhaps, though, China is less interested in running the world than in ensuring that other powers cannot or dare not attempt to thwart it. It aims to chip away at the dollar’s status as a reserve currency. And it is working hard to place its diplomats in influential jobs in multilateral bodies, so that they will be in a position to shape the global rules, over human rights, say, or internet governance. One reason Mr Trump’s broadside against the WHO is bad for America is that it makes China appear more worthy of such positions.

China’s rulers combine vast ambitions with a caution born from the huge task they have in governing a country of 1.4bn people. They do not need to create a new rules-based international order from scratch. They might prefer to keep pushing on the wobbly pillars of the order built by America after the second world war, so that a rising China is not constrained.

That is not a comforting prospect. The best way to deal with the pandemic and its economic consequences is globally. So, too, problems like organised crime and climate change. The 1920s showed what happens when great powers turn selfish and rush to take advantage of the troubles of others. The covid-19 outbreak has so far sparked as much jostling for advantage as far-sighted magnanimity. Mr Trump bears a lot of blame for that. For China to reinforce such bleak visions of superpower behaviour would be not a triumph but a tragedy.

(This article is from Economists https://www.economist.com/leaders/2020/04/16/is-china-winning)

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