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Viewpoint: 3 inflationary warning signals the world can’t afford to miss

Viewpoint: 3 inflationary warning signals the world can’t afford to miss

Another pandemic year is almost in the books and the forecasts of when the congestion will let up in 2022 have been flooding the news streams. But if COVID has shown us anything, it’s that this virus is the biggest source of uncertainty for the world. So what tea leaves can we look at for any insight? It’s simple: the flow of trade. 

There are three key indicators flashing inflationary warning signals that do not bode well for the American consumer or for consumers around the world.

The first indicator is ocean and airfreight rates. Despite the talk from the “smart money” on Wall Street and economists, they misread the decrease in ocean freight rates as a positive signal for an improvement in the supply chain. Little do they realize — or understand — these rates were down briefly for seasonality. According to Xeneta data, most 2022 contracts will be a record high.

“We expect peak season all year,” explained Peter Sand, the chief analyst at Xeneta. “Carriers are asking clients to pay up for secured, long-term deals or risk being hit by the vagaries of the spot market.”

Sand said Xenata expects prices to remain high due to sustained elevated demand, especially from Asia to the U.S., and the resulting port congestion. But asked if he sees rates soaring back to the lofty $25,000 price tag, Sand said based on the current outlook, he does not see a repeat.

It is important to note that not all contracts will be inked by some of the smaller to midsize importers. They will face the spot rates and the extra fees that are added.

“Ocean spot rates are up on all major freight indexes and these prices do not include premiums,” Sand said. “The expectation is that demand will increase somewhat ahead of Chinese New Year, which begins Feb. 1, so rates are likely to tick up again soon. But even after CNY, expectations are that high consumer demand and low inventory levels will keep rates elevated well into next year.”

Unfortunately there is nothing friendly about the skies for airfreight. Logistics managers looking to the heavens for solutions will only find the price tag hefty. According to the Freightos marketplace, air cargo rates from Shanghai to the U.S. West Coast were more than $16 per kilogram last week, a 25% increase in the past month and more than four times typical levels.

The biggest headwind facing air rates, according to Freightos, is cargo in aircraft passenger cabins will no longer be accepted by China in the new year, a move it warns will keep airfreight rates high. China’s Civil Aviation Administration said “only anti-epidemic-related items are allowed to be loaded in the cabin.” Another trade headwind is China’s zero-tolerance COVID practices have resulted in fewer ground-handling crews at many airports.

The bottom line: Looking at these rates will only add to the inflationary pressures on products.

Freightos recently surveyed its small and large businesses on the impact of supply chain costs. The results of course are not surprising. The smaller companies do not have the bandwidth to absorb the price increases.

Chart 4

The second headwind is the variant itself. We have seen an increase in omicron cases in the Chinese manufacturing city of Guangzhou, Tianjin Zhejiang, and around the port city of Ningbo. According to a report from Reuters, 20 listed companies operating in the province have suspended operations. These include battery, textile and pharmaceutical manufacturers.

Another China congestion indicator the flow of trade is signaling is at the Pearl River. As we saw last year as a part of China’s COVID quarantine measures, that major waterway for inland trade was purposely slowed down so workers could make it home in time for the Chinese New Year quarantine. As a result of that quarantine, a false increase in containers flooded the market after Lunar New Year. This is expected again and will only add to the congestion at the ports and thus fuel higher rates.

Remember, the flow of trade is a series of pipes. If one pipe gets clogged  it impacts the entire efficiency of the plumbing.

The third inflationary indicator is in Vietnam. While yes, the country is back up after the historic lockdown, the workers’ return has been slower than originally forecast. As far as COVID restrictions, the Vietnamese government is requiring proof of double vaccination in order to travel.

“Vietnam is still slowly restarting,” said Stephen Lamar, CEO of the American Apparel and Footwear Association. “In addition to the spread of omicron, there are reports of workers waiting until after Tet before they come back. While this is normal this time of year, it is more pronounced because of the pandemic. Vietnam is dealing with the epic supply chain challenges that are challenging all countries.”

This decrease in manufacturing will only add to the inflationary pressures on supply.

Seko Logistics tells American Shipper that Vietnam is also falling victim to the knock-on effects of the berthing congestion and wait times in Los Angeles and other U.S. ports.

“All schedules of shipping lines [are] completely out of sync versus their pro forma (published) ones,” said Akil Nair of Seko Logistics APAC. “This is resulting in many blank sailings and port omissions and thus many vessels omitting the deep-water port Cai Mep in Ho Chi Minh. With this being the case, some of Seko’s clients are looking to move their goods via alternative routings, including via [the] land/sea mode to get access to ocean capacity via places like Singapore, Malaysia or even up back through to China.”

Another logistical issue Nair flagged was a port infrastructure issue with Lac Huyen, a deep seaport in Hai Phong in North Vietnam, that is preventing large vessels from calling. “This is causing a serious lack of capacity in Hai Phong,” he said. 

Major congestion at all major border crossings between China and Vietnam is also being reported by the Vietnamese media. Vietnam’s Customs Online reported last Thursday there were approximately 5,000 containerized agricultural products in the three ports of Vietnam: Xinqing, Youyi and Chima.

“At Xinqing Port, the backlog of cargo has increased sharply to nearly 4,000 containers, nearly 700 containers at Shima Port and about 500 containers at Friendship International Port,” Nair said. “This is the worst cargo backlog in history at the border crossings in Lang Son Province.”

Thousands of container trucks are in the northern province of Lang Son at Vietnam’s border gates with China. On Dec. 15, China announced it was halting customs clearances at the key inland seafood trading port of the border after a positive COVID-19 case in the area. The Hanoi Times, which is controlled by the Vietnamese government, posted a photo of the congestion.

The flow of trade is still congested and the price tag for the inefficient transport of trade is still up. 2022 is going to be another monumental year for logistics managers and the supply chain. Containers don’t lie.


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22 December 2021, 23:00