The past several days, stories have appeared in the news about China’s crackdown on power usage by factories in several provinces. We have seen these stories and, in turn, been asked by our customers whether or not their shipments will be impacted. Further, because seemingly disconnected events happen in a vacuum, we have simultaneously been asked if this means that fewer Chinese exports will translate into lower rates in the near term. Allow us to address several of these points with facts and sources that we have at our disposal today.
Golden Week is still coming.
In non-pandemic-fueled supply chain times, there is always a slight bump in rates upwards because of increased demand for space before holiday periods like Golden Week and the Lunar New Year. This is because China Customs closes to process exports, and carriers will blank sailings because there is nothing to ship.
This increase in demand remains in place this year and is exacerbated by the backlogs not just in California, but also off the coast of China.
The San Pedro Bay isn’t the largest marina in the world right now.
The figures have fluctuated between 60-70 vessels at anchorage and drifting, but this is a fraction of what has been reported off the coasts of Shanghai and Ningbo, and even China-wide. This story in FreightWaves shares that as of a week ago Friday, there were 154 vessels offshore in Shanghai and Ningbo combined and more than 240 across all Chinese ports.
The backlogs are due to the flood of vessels brought to bear to move goods across oceans, but it is the toxic combination of scheduled sailings, behind-schedule sailings, and added loaders (extra, unscheduled sailings) that have created the disastrous bunching across the oceans.
Is China playing favorites with power decisions?
China has also stepped up enforcement and actions on cryptocurrency mining, a notoriously energy-consumptive process. In fact, China went so far as to ban both the mining and holding of the currencies as a way to further control currency transactions between China’s citizens and businesses and the rest of the world.
Because of their stated commitment to moving away from coal power and turning instead to renewable energy, China is also looking at energy-intensive, low-value-added businesses, like refineries. According to The Guardian:
China has vowed to cut energy intensity by about 3% in 2021 to meet its climate goals. Provincial authorities have also stepped up the enforcement of emissions curbs in recent months after only 10 of 30 mainland regions managed to achieve their energy goals in the first half of the year.
We have also received information that China is looking to industries that may have returned to mainland China following relocation to developing countries in Southeast Asia. These countries have had worse luck with COVID outbreaks, particularly the virulent Delta variant. This potential return of businesses that China was willing to see leave, because of low wages and high environmental and energy impact, may be among those being targeted with shutdowns that lasted for days.
Vietnam’s battle with Delta has been well covered, and lockdowns extended over the past months.
TOC Logistics’ Analysis
In our opinion, the turmoil roiling both energy markets and supply chains appears to already be at an altitude and fever pitch that—inexplicably—cannot worsen further. It is nearly the equivalent of grasping the final straws as a parent to convince your child to take a desired action while running out of consequences to drive compliance.
Rates are already at historic levels. Will 100 vessels lurking offshore be 42% worse than the 70 already there? At what point do carriers’ insistence that rates are set by the free market anger competition authorities to take drastic action because they’ll cease to buy the “xenophobia is driving hate” argument instead of sheer opportunism?
TOC Logistics’ goal is to continue to work, negotiate, mitigate, and have our teams continue to apply manual interventions and management to processes long automated, but which have been badly broken in today’s shipping climate. We will continue to work for our customers and provide whatever tools our team members need to get the job done, day in and day out, until the light at the end of the tunnel isn’t a stalled train.