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Global shipping conveyor, JIT, Pandemic and BDI

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  • Global shipping conveyor, JIT, Pandemic and BDI

    I post this here as I have no idea how to catagorise it. If any of the mods can think of a suitable home in the main forum please post a copy there as it would get a wider readership.

    One of the first things I wrote on Pandemics, in 2005, contained a section warning of the dangers to the supply chain caused by the combined effects of globalisation, Just-in-Time (JIT) manufacturing & distribution and Urbanisation - as a manifestation of population growth and its redistribution. More recently I have been concerned by the re-emergence of discussions on port closers as a means of slowing, or even preventing, pandemic spread. I have warned that this is a dangerous idea but not really taken the time to explain why - which I will now try to rectify.

    I have referred to the system as the Global Conveyor (more properly reserved for the ocean's deep current system, also under threat with catastrophic consequences but for different reasons) but it is the web of ports and shipping lines that move all the tangible essentials for global trade that I am dealing with.

    In reality there are only a relative small number of ships and ports which makeup the system.

    If we start with the ships they are divided into four types based on their ability - or not - to pass through the Panama & Suez Canal; so in descending size Capesize, Suezmax, Panamax & Handymax with the first three moving the long distance bulk cargo. Then there are three main categories by cargo type Tankers, Bulk and Container. All told the fleet comprises approx 12,000 ships of which about 3,000 are tankers .
    The ports also dredge and build their infrastructure to match these ship sizes/types and there are limited numbers that can handle the Panamax and above. There are a small number of key ports in three categories Bulk Reception, Bulk Production and Trans-shipment. Bulk production ports are normally at deep water natural harbours at the railheads from coal, iron, grain or other commodity producing areas. Trans-shipment ports are geographically strategic hubs and include Singapore, Colombo (Sri Lanka), Algeciras (Spain - straits of Gibraltar) & Dubai (Suez traffic). Bulk reception will be near large scale manufacturing and/or consuming centres. Obviously many ports cover multiple categories and some are enormous.

    From a pandemic point of view the most immediate effects would be due to interference of the flow of containers as they would carry finished goods including medicines, face masks etc. but the more major problem lies in the disruption of the flow of the conveyor. Enormous though some of these ports are (Shanghai port area 3600 sq km handling 500m tons p.a.) they are not designed for storage and are built on the assumption the goods will flow. Likewise the choreography of the ship loads and their movement would be severely disrupted if they were unable to unload and reload in a timely fashion. Key trans-shipment points would become clogged and I dread to think how long it would take to unscramble the mess. If you have ever had an airline lose one of your bags you might get an inkling of what relocating 18 million containers, and their contents, would be like. This would only be the first stage in a much wider and spreading problem as JIT manufacturers of everything began to run out of components, and in any case could not load finished goods onto the conveyer due to breakdowns further up stream. Today even most people?s food in the West is a manufactured product requiring the transport of thousands of separate components. A ready meal needs the ingredients but it also needs a container, a lid, a box, and many machines to assemble them each of which have a thousand moving parts sourced from every corner of the globe. Economies of scale have caused some seemingly inconsequential, but essential, precursor products to be produced in only one or two factories in the world. In 1995 there was an earthquake near Kobe in Japan and, while no one immediately noticed, one factory that was destroyed made the green resin you find RAM chips embedded in, as a result the price of computer memory shot through the roof as it accounted for about half the global supply.

    If we look a little more closely at container ports there are 50 ports handling 2m+ TEU annually, of which 10 fall in the 5 to 10mTEU range with 5 from 10 to 20 and another 5 over 20m. Singapore just pips Shanghai into first place at 28m TEU. To give an indication of scale the UK which has a population of about 60 million and is a G8 economy handles 10m TEU containers annually, one third of which passes through Felixstowe, LA is the largest US container port at 10m TEU. (containers are 8ft by 8.5ft by a variable length but the standard unit is a TEU or Twenty foot Equivalent Unit). The largest container ships hold 15k TEU with Panamax limited to about 5k.

    While not relevant to our pandemic discussion as I have supplied the basic information on global shipping above I will add a little on the current situation ? which is dire.

    Again a little background. As it takes about 2 years to build a ship the market is inelastic which makes shipping rates a rapid, if violent, barometer of global trade. The measure for these rates is the Baltic Dry Index (BDI) which is calculated daily by getting quotes for a basket of standard routes and cargoes. I remember reading this article ?Rise in bulk shipping rates seems likely to continue? in August as the BDI went through a new high at 10,000; it is currently 836.

    What?s going on?

    Obviously there is the spiraling US sub-prime crisis killing consumer confidence and attendant credit crunch, there is the Gulf piracy problem and a structural problem. I will start with the structural problem and one aspect of the credit crunch. Shipping companies often charter ships at a day rate for a fixed period of time (six months or a year being typical) and then quote for loads on a journey basis (as the BDI is calculated) obviously if they were chartering based on a rising BDI heading for 10k and now are competing for jobs at a tenth of that they are losing money hand over fist and the first bankruptcies are already being filed. This is exacerbated by the industry?s use of letters of credit as standard fare when such things are hard to come by, even if you are not in shipping.
    The escalating piracy problem will have several effects. Insurance increases (and fear) will lead to a shift from Suezmax to Capesize for some cargoes. Egypt will lose some canal income as will the port of Dubai. There is little you can do about the lack of loads but some shippers will reduce speed to conserve fuel, which makes sense if you do not have a follow-on load.

    This Goggle maps link is to a Shanghai port container terminal. The ships being unloaded are Panamax size and if you look at the container park you will see there is very limited holding space if boxes start to pile up. Looking at various container parks around the world most seem to be 60 percent full under normal circumstances and the straddle carriers are too wide to operate off site.

    Panamax fixtures up amid doubt over letters of credit is a LLoyds list article from Nov 7
    Last edited by JJackson; September 10, 2018, 05:54 PM.

  • #2
    Disruption in the global container shipping industry shows no sign of being resolved quickly and could lead to shortages in the run-up to Christmas, say industry experts.
    An outbreak of Covid-19 in Guangdong province in southern China has caused acute congestion at the region's ports. As a result, shipments have been delayed, exacerbating tensions within global supply chains.
    And the knock-on effects could take many months to resolve.
    The problems in Guangdong are just the latest in a series of severe setbacks for the industry. Shipping firms have been struggling to cope with dramatic fluctuations in demand triggered by the pandemic, as well as the consequences from the recent blockage of the Suez Canal ...
    Last edited by JJackson; June 13, 2021, 05:31 PM.


    • Emily
      Emily commented
      Editing a comment
      The nuclear plant with trouble is in Guangdong, too. I hope their staff is OK.