Update 23rd March 2020 Primex Philippines

1 month ago

Reprint courtesy of the Daily Telegraph

'Dominoes falling' in global shipping as coronavirus continues to grip China's economy

• AMBROSE EVANS-PRITCHARD
20 FEBRUARY 2020 • 6:04PM

Container shipping from Chinese ports has collapsed since the outbreak of coronavirus and has yet to show any sign of recovery, threatening weeks of chaos for manufacturing supply lines and the broader structure of global trade.
Almost half of the planned sailings on the route from Asia to North Europe have been cancelled over the last four weeks. A parallel drama is unfolding on routes from the Pacific Rim to the US and Latin America.
Lars Jensen from SeaIntelligence in Copenhagen said the loss of traffic is running at 300,000 containers a week. This will cause a logistical crunch in Europe in early March even if the epidemic is brought under control quickly.
“The dominoes are toppling through the whole chain. When ships don’t leave port in China, they don’t stop to pick up cargo in Hong Kong, Saigon, or Singapore either. Freight rates are in free fall,” he said.
Refrigerated ships full of frozen food - known as ‘reefers’ - are unable to enter Chinese ports because berths are full and therefore cannot tap into electricity chargers. There is a logjam caused by the critical shortage of dockers and drivers. Meat supplies are spoiling at sea.
The US Agriculture Transportation Commission said the Pacific supply chain has been badly “compromised” and logistical headaches are building up as US ports as well. There will soon be an acute lack of containers in both American and European ports as the finely-tuned regime of world maritime transport goes haywire.
Mr Jensen said European factories are already feeling the shock. “The first to be hit is the auto-industry because it has a very tight supply-chain. Companies are having to airlift in supplies from Asia, which is extraordinarily expensive,” he said.
Fiat Chrysler has suspended production of the Fiat500L in Serbia for lack of audio systems from China.
Jaguar Land Rover said it could last another couple of weeks before component gaps emerged at its UK plants. Chief executive Ralf Speth said JLR is already taking drastic measures. "We have flown parts in suitcases from China to the UK," he said this week.
Optimists expect China to rebound quickly as virus lockdowns are relaxed but there is little hard evidence of this so far. Nomura’s daily tracking gauge shows barely a flicker of movement on the economic needle.
The Baidu Migration index for 15 cities shows that 74pc of travelers have yet to return from the Lunar New Year holiday, often because they cannot move. Passenger travel on trains is still down 79pc.
The WIND index of new home sales in 30 major cities show sales are down 88pc. This is squeezing over-leveraged property developers. They rely on advance sales to stay afloat and to roll over dollar loans on the Hong Kong funding markets.
Run rates at oil refineries are off by three million barrels a day - enough to alter the global crude balance if it persists - and daily coal consumption is 42pc below normal. Passenger car sales are down 92pc.
Global equity markets are ‘looking through’ the crisis - unlike bond markets - betting on a V-shaped recovery in the second quarter. This assumes that official Chinese data on contagion can be trusted after the testing criteria were loosened again, and given the police state tactics being deployed to silence independent reporting. It is hard to make any meaningful judgement now the Communist Party has launched a propaganda blitz declaring imminent victory.
The sudden jump in Korean cases linked to one church with no particular links to China is a warning of what could be in store as the virus spreads globally. Infectious disease experts say Japan’s decision to let passengers off the Diamond Princess cruise ship without fresh quarantine is courting fate given the high failure rates of the tests. Japan risks an internal epidemic that could ultimately threaten the Olympics.
Kristalina Georgieva, the head of the International Monetary Fund, said she fears a ‘W’-shaped recovery, meaning a short-term bounce based on hopes of containment followed by a second phase as it becomes clear that Covid-19 is spreading around the world after all.
Oxford Economics says a global pandemic would push both the US and the eurozone into outright recession. Europe has no monetary ammunition to fight a downturn.
The Chinese central bank has trimmed loan prime rates to ease pressure but this makes little difference since credit demand is wilting. Far more significant is pressure on banks to evergreen loans to small businesses facing insolvency, as well as moves to waive social security taxes for employers.
Arend Kapetyn from UBS said the credit lever has lost its potency. “Our expectation is that credit stimulus peaks out at about half the level we saw in the three previous slowdowns,” he said.
Yu Yongding, an ex-ratesetter for the People’s Bank, says this crisis is far more serious than the SARS epidemic in 2003. “The Chinese authorities must prepare for the worst," he wrote in Caixin Magazine.
"The battle against the coronavirus undoubtedly will be very costly, and will reverse some of the recent achievements in reining in financial risks. For now, however, any potential problems related to debt, inflation, or asset bubbles are secondary,”
Fiscal stimulus is coming but the transmission channels will remain blocked as long as the lockdown measures stay in place. But to lift the curfew risks losing control of the virus. China faces an impossible dilemma. ... See MoreSee Less