‘Another year of crazy hiccups’: Russia and China pose new threats to global supply chain
Allied financial sanctions and the closure of Russian airspace are forcing cargo planes to fly longer, costlier journeys from Asia to Europe.
Fallout from the war in Ukraine and a coronavirus outbreak in China’s manufacturing heartland are putting fresh kinks in global supply chains, dashing hopes of a return this year to reliably smooth freight shipments and adding to pressure on consumer prices.
Allied financial sanctions and the closure of Russian airspace are forcing cargo planes to fly longer, costlier journeys from Asia to Europe. Dozens of Chinese factories and port warehouses that supply the United States remain shuttered amid the country’s worst coronavirus flare-up since the original wave in Wuhan. And triple-digit oil prices are inflating fuel bills for ocean carriers and truckers.
On Thursday, Maersk, the world’s second-largest cargo carrier, warned of “unpredictable operational impacts” from the Russia-Ukraine war, while in southern China, waiting times grew for ships trying to dock at the ports of Yantian, Chiwan, and Shekou.
The disruptions so far are not as extreme as in the pandemic’s worst months. Chinese authorities in recent days have allowed some manufacturers, including a top Apple supplier, to reopen under tight restrictions.
But supply-chain specialists said they expect conditions to deteriorate, reversing the recent improvement in the container ship backlog off the California coast and complicating the Federal Reserve’s fight against inflation.
“What people expected to be a recovery year is going to be another year of crazy hiccups in supply chains,” said Johannes Schlingmeier, chief executive of xChange, a shipping container leasing company in Hamburg, Germany.
Over the past 30 years, ocean-spanning supply lines fueled prosperity, enabling the global economy to grow almost two times larger, according to World Bank data.
Now, they seem snakebit.
Factory closures. Wildfires. Worker shortages. A marooned container ship blocking the Suez Canal.
Even before the Ukraine war and China’s coronavirus setback, supply-chain struggles were the pandemic-era economy’s one constant. Last week, in an echo of the 2021 Suez incident, a vessel from the same shipping line ran aground in Maryland’s Chesapeake Bay.
“These things are happening more often,” said Ami Daniel, chief executive of Windward, a maritime intelligence firm in London. “The world is just becoming more complicated to trade in.”
The crises in Russia and China emerged as some of the worst global backlogs appeared to be easing. The logjam of ships off the coast of Southern California, which peaked last year above 100, has been cut in half, according to the Marine Exchange of Southern California.
Cargo began moving more quickly late last year after port officials threatened to fine terminal operators for containers that lingered on the docks. During the first two months of this year, the Port of Los Angeles processed 5.4% more containers than during the same period in 2021, which had been a record high.
“Fluidity and velocity on our docks continues to improve,” Gene Seroka, executive director of the Port of LA, told reporters this week.
But Lars Jensen, chief executive of Vespucci Maritime in Copenhagen, Denmark, called the apparent progress “a mirage,” saying ocean carriers have been redirecting vessels to other U.S. ports, including Charleston, S.C., creating smaller jams there.
Port officials expect imports to keep rising this spring as retailers rebuild thin inventories. Many companies are bracing for continued difficulties getting what they need when they need it.
Hamilton Beach, a maker of coffee pots, blenders, and toaster ovens, told investors this month it anticipates that supply-chain constraints and higher transport costs will “continue through this year.” Executives plan to raise prices in response, an illustration of how supply-line snarls are fueling the highest consumer price inflation in 40 years.
“If you look at the LA port, you don’t really see relief in sight yet. Solving these supply-chain bottlenecks will still take more time,” said Michael Wax, chief executive of Forto, a freight forwarder based in Berlin.
After declining late last year, the cost of sending a standard shipping container from China to Los Angeles rose by 20% over the past two months to $16,353, according to the Freightos index.
That’s more than 12 times what it cost in the months before the pandemic.
The recent surge in oil prices hasn’t helped. The price of a metric ton of the low-sulfur bunker fuel used by oceangoing cargo ships topped $1,000 earlier this month, roughly twice its pre-pandemic mark.