Global shipping crisis sparks trade chaos, how will it impact India
Apple Inc. takes, on a cumulative basis, a month’s worth of shipping time to source all 34 major components and 100s of other small parts for an iPhone from nearly 200 suppliers located across the world. It then sells these to one of its largest contract manufacturers, Taiwanese maker Foxconn, in China’s Zhengzhou.
The Zhengzhou facility, which churns out over 300 iPhones a minute, sells the finished products to resellers around the world using different shipping lines. According to data from the World Economic Forum, 80% of global trade by volume are carried by sea this way.
A global shipping slowdown has currently sparked a trade chaos, throwing off gear delivery timelines of critical raw material, intermediate goods and finished items.
Advanced economies are witnessing labour shortages because the pandemic shrunk the labour force putting pressure on global supply chains.
The supply knots are forecast to impact manufacturing output in Asia’s third-largest economy, much like elsewhere. Close to vaccinating a billion people and witnessing a surge in demand amid a festival season, India is a net importer of many things, such as petroleum, electronics components, semi-conductors, active pharmaceutical ingredients and fertilisers.
Here’s how the shipping crisis built up
One half of the world comprising western economies, which are the biggest recipients of coronavirus vaccines, have opened up faster than the other half, including countries where much of the world’s factories are located and aren’t able to match the demand surge in developed economies.
Trouble first began in June when the Ever Given, a 20,124 TEU (twenty-foot equivalent unit is a measure of volume in units of twenty-foot long containers) container giant, got wedged in the Suez Canal for nearly a week, delaying hundreds of ships between Asia and Europe. That same month the port of Yantian in the Chinese city of Shenzhen was partially locked out due to a coronavirus outbreak. This threw shipping schedules out of gear for a whole month, with domino effect.
According to the UN Conference on Trade and Development data, 70% of world trade by value are carried by sea. The lack of synchronised recovery due to vaccine inequality has created congestion resulting in ocean freight rates doubling.
The modern shipping container is to global trade what packaging material is to Amazon. Shortage of labour, higher demand and lack of raw materials have pushed up costs of all-weather containers, the lifeline of global trade. The average price for a 40-foot container increased 2.9% around the middle of September 2021 from a month ago and 323% over a year ago, according to the Drewry World Container Index, which tracks their cost.
The gridlock’s nerve-centre is the world’s factory floor, China. The world’s largest trading nation is still pursuing stringent strategies to keep Covid-19 at bay, slowing its manufacturing prowess.
Indian small manufacturers, fertilizer makers and the pharmaceutical industry are experiencing delays in import of raw materials and intermediate goods, all of which can stoke inflation.
After widespread pandemic-induced layoffs, global corporations are finding it difficult to get workers back, many of who have relocated to less expensive places or have moved jobs. This is the main reason for labour shortage in advanced economies ahead of Christmas.
“I am not panicking but will have to if shipping costs don’t stabilise and regularity is restored,” says Anand Sarin, who exports basmati rice from his factory in Hisar, Haryana
Quarantine rules at ports means ships are taking twice the time to dock and leave with fresh goods from 60% of the world’s ports, including in India, according to a research note by the Copenhagen-based Sea-Intelligence Plc.
It’s going to linger, forecasters say. “It is hard to see supply-chain bottlenecks being resolved any time soon, with some major exporters including Indonesia and Vietnam still struggling to contain the delta outbreak. It could continue to drag on the global recovery by slowing production and pushing up costs, although not derailing it,” wrote Bloomberg’s Asia chief economist Chang Shu in a recent note.