The cure is worse than the disease, say critics of an emergency plan of the ports of Los Angeles and Long Beach backed by the Biden administration. If you think port congestion is bad now, just wait for what comes next.
On Wednesday, two days after the ports of Los Angeles and Long Beach announced a surprise emergency fee for containers lingering too long at terminals, the National Shippers Advisory Council (NSAC) held its inaugural meeting. NSAC, created to advise the Federal Maritime Commission, is composed of 12 U.S. importers and 12 exporters. Members include heavy hitters like Amazon, Walmart, Target, Office Depot and Ikea.
‘I think it will be catastrophic’
Starting Nov. 1, the ports of Los Angeles and Long Beach will charge $100 per container for boxes dwelling nine or more days that move by truck and those dwelling six days or more that move by rail.
The fee will increase $100 every day. It will be charged to carriers, which will then almost certainly pass the fee along to shippers, meaning it will be the equivalent of an escalating demurrage charge.
“As far as the ‘hyper-demurrage’ announced in Los Angeles/Long Beach, I think it will be catastrophic,” said Rich Roche, vice president of international transportation at Mohawk Global Logistics, during the NSAC meeting.
We've been writing about the evolving global supply shock for some time (most recently today when we addressed what may be required to normalize the supply chain bottlenecks). And yet, every day we read about another dramatic commodity spike or factory shutdown.
In a recent report from Deutsche Bank's chief FX strategist George Saravelos, he discusses three sets of charts. They point to a "worrisome picture" where bottlenecks in one part of the economy are having a knock-on impact on another forcing further shutdowns. First, DB's proprietary global shipping data is pointing to a very sharp slowdown in global trade. They also highlight the massive current and forthcoming demand for Treasuries from US banks, which is reflective of Saravelos' previously discussed view of persistent excess savings and a low global r* (not to mention a Fed policy error).
This not only helps explain why global bond yields aren't selling off more despite the dramatic inflation spike, but also why the US current account deficit and dollar did not deteriorate more sharply this year. Taking it all together, the DB strategist warns that "we may not be that far from the unfolding global supply shock entering a negative feedback loop with weakening demand."
First, the FX strategist used the bank's dbDIG team’s proprietary satellite/AI data which analyzes the movement of 100s of thousands of ships across the globe. It shows that the global shipping crunch is leading to a sharp slowdown in volume of goods going through ports suggesting material downside risks to the manufacturing cycle. The data also tracks shipping congestion and is showing that the logjam is the worst it’s ever been.
Finally, we can see that the primary problem here is not one of excess demand for goods but a breakdown in supply: global container capacity driven by supply chain disruption, has sunk to near-decade lows
Second, Saravelos highlights how the fixed income market is already starting to price a recession in the Czech Republicwhere the yield curve has dramatically inverted. This is a worrisome development given Czechia’s tight links with global auto supply chains and is unsurprisingly also pointing to big downside risks to the global PMI
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