Despite the current disruption, globalisation is far from over. Elevated freight rates are set to remain in place for the remainder of this year and any normalisation is unlikely to manifest itself until 2022.
Policy makers should be wary of talking down the role of globalisation, despite the disruptions seen in the supply chain from high demand and the recent Ever Given grounding in the Suez Canal.
“Globalisation is the work of decades; do not let it run aground,” said BIMCO chief shipping analyst Peter Sand.
“The whole world has been made aware of the significance of the shipping industry and some of the strengths and weaknesses of global supply chains. But at the end of the day, resilience comes not from autarky but from diversification of supply,” he said speaking on a webinar Thursday.
Globalisation had been “shifting down through the gears” since the launch of the trade war between the US and China, but it was “nowhere near being in reverse”, Mr Sand said.
This had been witnessed by the strength of imports into the US, which in February were twice as high as they had been at the low point at the start of the pandemic last year.
“The doubling of volumes in February was good for business but also extended the troubles that have been experienced for at least half a year,” Mr Sand said.
The 100% increase in US imports was not only a result of a strong stimulus package to US consumers but also due to a “very slow” recovery in the US manufacturing sector.
“US manufacturing struggled throughout last year and when demand was picking up and underpinned by cash-rich consumers, they had nowhere else to go but to the key providers of consumer goods in Asia,” Mr Sand said.
As retail sales rebounded to end up 3% ahead over the full year 2020, the value of US manufactured shipments remained down by over 5%.
“We are also seeing the strength and efficiency of the Chinese manufacturing sector as it has been capable of not only recovering fast but also catering to a very strong demand,” he said.
“At some point in time consumers will start spending on something other than goods, and that is when we will see this reverse.”
In the meantime, elevated freight rates were set to remain in place for the remainder of this year.
“Any normalisation is not likely to manifest itself until 2022,” Mr Sand said.
“This is a fully global disruption in terms of equipment and congestion.”
These issues had been exacerbated by the Suez Canal grounding and the supply chain would feel the effects for several months as the impacts trickled down into the inland network.
“The disruption will not be as much in Europe as would have been the case in the US, because there are more options in terms of ports and terminals at which to call, compared to the US west coast, for example,” he said.
Nevertheless, pressure on equipment and capacity saw rates tick up again this week, with the Shanghai Containerised Freight Index rising 7% to 2833, just shy of its recent all-time high.
Rates from Asia to Europe and the Mediterranean rose 5.6% and 5.3% respectively, with both trade lanes now commanding around $4,200 per teu.
But the biggest main lane hike this week was on the transpacific, where rates jumped by 12.7%, or $501 per feu, lifting them back over the $4,000 mark to $4,432 per feu for Asia-US west coast services.
“The normalisation of the container market is taking longer than expected, due to ongoing bottlenecks and capacity constraints, exacerbated by the recent blockage of the Suez Canal, while container demand is supported by the greatest re-stocking cycle on record in the US,” said Jefferies analyst David Kerstens.