Thursday, October 7, 2021

Supply Chain Woes

Container ships waiting offshore of Los Angeles harbor
Peter Grant, at his Bayou Renaissance Man blog,  has a thoughtful piece on how the collapse of logistics chains threaten to grind the economy to a halt: "The US economy is in imminent danger of seizing up solid". He notes, for instance:

If a container ship is anchored off a Chinese port for a month, waiting to load cargo, then sails across the Pacific to a US port, then anchors off one of our harbors for another month to await unloading, it's occupied for three to four months with a single cargo.  Under normal circumstances, it'd carry three to four cargoes during that same period - but the clogged-up arteries of the world's transport and logistics system simply can't cope with that any more.

He further explains: 

    The result of the clogged-up ocean shipping system is that, due to delays and waiting periods, literally hundreds of the biggest cargo ships in the world are forced to carry no more than a quarter of the cargo they'd normally transport during any given year.  All those manufacturers and countries that gleefully exported their manufacturing capacity to China or Asia in past years are now sitting with goods overseas that they can't get to the customers who want them.  That's the living definition of a logistics bottleneck, right there.  Some high-value, low-bulk items can be transferred to aircraft for shipment (at much greater expense), but that doesn't apply to many heavier or bulkier manufactured goods.  They have to wait for a ship, or take the railroad from China across Siberia and Russia to Europe, and be distributed there or sent on by ship to the USA and elsewhere - but the ships to carry them are, as mentioned above, in drastically short supply.

    Here in the USA, ships are waiting one to two months to get off-loaded;  then their containers are sitting in harbors, waiting for rail or road transport to their destinations.  However, land transportation is also backlogged, struggling to cope with the huge influx of containers and cargo.  It's not just at the harbors, either.  Railroad companies have only so many freight cars, and road transport companies have only so many trucks that can carry containers.  They may want to order more, but the companies that make them often rely on raw materials and parts from - guess where? - CHINA, or other overseas manufacturers.  (For example, almost every rail car relies on computer chips to control its brakes, send signals to the engine if it has a problem, etc.  The chip shortage currently affecting motor vehicle manufacturers is affecting rail car manufacturers, too.) 

Citing to articles from the Mises Institute, Bloomberg, the Wall Street Journal and other sources, he goes on to explain that this and many other problems with production and trade are the direct result of governments deciding to put economies on "pause" during the Covid lockdowns. He concludes: "I can only recommend most strongly that you check your own supplies, make a list of things you need to get through at least the next two to three months, and stock up on them right now, while they're still to be found.  You may find some are already unavailable;  if so, look for substitutes, and don't quibble about getting exactly the brand or variety you wanted."

In an open letter Wednesday to heads of state attending the United Nations General Assembly, the International Chamber of Shipping (ICS) and other industry groups warned of a "global transport system collapse" if governments do not restore freedom of movement to transport workers and give them priority to receive vaccines recognized by the World Health Organization.

    Autumn harvest in the top agricultural producer is underway just as the world’s No. 2 economy faces power shortages in industrial hubs that threaten to slow growth. Among the worst hit are northeastern provinces such as Jilin, Liaoning and Heilongjiang -- where about half of China’s corn and soybeans are grown.

    The crisis is stoking concern that China will have a tough time handling crops from corn to soy to peanuts and cotton this year after some plants were asked to suspend or cut output to conserve electricity. Over the past year, the nation imported a record amount of agricultural products due to a domestic shortage, driving prices and global food costs to multiyear highs.

    So far, the power shortage has forced soybean processors in northern regions to shut, affecting some operations of Louis Dreyfus Co., Bunge Ltd. and Wilmar International Ltd.’s Yihai Kerry unit. There’s also concern that the electricity crunch could cut operating rates of corn processors that make products like starch and syrup, Chinese brokerage Huatai Futures Co. said.

    The country needs to ensure sufficient power supply to keep up with expectations for a bumper harvest. “This will affect the supply and prices of agricultural products, which is a matter of importance for the national economy and people’s livelihood,” according to Futures Daily, a state-backed media.

    Some companies have bought back-up generators in case of prolonged power cuts, Futures Daily reported, citing traders and producers. Electricity is needed to dry the crops, an important process before storage and sale. Corn and peanut supplies may deteriorate in quality if they’re not processed in time.

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