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China Covid cases causing higher shipping costs, delayed goods

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Shipping containers from China and other Asian countries are unloaded at the Port of Los Angeles as the trade war continues between China and the US, in Long Beach, California on September 14, 2019. –

Mark Ralston | AFP | Getty Images

First, it was a critical shortage of shipping containers due to the pandemic. Then came a massive blockage in the Suez Canal.

Now, businesses and consumers are bracing for yet another shipping crisis, as a virus outbreak in southern China disrupts port services and delays deliveries, driving up costs again.

The Chinese province of Guangdong has faced a sudden uptick in Covid-19 cases. Authorities have moved to shut down districts and businesses to prevent the virus from spreading rapidly.

That’s causing massive shipping delays in major Chinese ports, and jacking up already-high shipping costs as waiting times at berth “skyrocketed,” according to analysts and those in the shipping industry. 

“The disruptions in Shenzhen and Guangzhou are absolutely massive. Alone, they would have an unprecedented supply chain impact,” said Brian Glick, founder and CEO at supply chain integration platform Chain.io, told CNBC.

However, combined with the challenges that the global supply chain has faced since this year, shipping is in “absolutely uncharted waters,” said Glick. 

Guangdong, a major shipping hub, accounts for about 24% of China’s total exports. It is also home to the Shenzhen port and the Guangzhou port — which are the third largest and the fifth largest in the world by container volume, according to the World Shipping Council. 

The first local case of the Delta variant, first detected in India, was found in Guangzhou in May and has since spiked to over 100 cases. Authorities have imposed lockdowns and other measures that constrain the processing capacity at ports.

Global supply chain at risk again

As different parts of the world bounced back from the pandemic late last year, there was a buying boom which led to containers falling critically short. That caused massive delays in the shipping of goods from China to Europe and the U.S. and drove up prices for businesses and consumers. 

Then one of the largest container ships in the world, the Ever Given, got stuck in the Suez Canal and blocked the key trading route for nearly a week. About 12% of global trade passes through the Suez Canal, where more than 50 ships a day on average pass through.

The incident sparked a global shipping crisis and held up $9 billion in international trade a day.

Now, the most recent crisis, in southern China, is disrupting the global supply chain again.

Shipping costs are at all-time highs … We’ve broken through so many price ceilings that nobody can say where this will peak.

Brian Glick

founder and CEO, Chain.io

“I think the risk of supply chain disruption is rising, and export prices/shipping costs will likely rise further. Guangdong province plays a critical role in the global supply chain,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

JP Wiggins, vice president of corporate development at shipping software firm 3GTMS, told CNBC the port crisis in China will cause much more disruption for the American consumer as many of the affected shipments are destined for North America. In comparison, the Suez blockage had a greater impact on European trade as a lot of the delayed deliveries were destined for Europe.

Wiggins also said consumer expectations will need to remain in “Covid mode.”

“Expect shortages and out-of -stock of all the Asian-made products,” he explained.

Shipping costs ‘at all-time highs’

Spiking shipping costs have been a direct effect from the crisis. 

“Many small- and mid-sized shippers are throwing up their hands as the cost of shipping is surpassing the margins on the products they’re trying to move,” Glick said. “Shipping costs are at all-time highs with anecdotal quotes coming in at 5 to 10 times historical norms. We’ve broken through so many price ceilings that nobody can say where this will peak.”

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Wiggins warned that rates are “fluctuating wildly,” and said he’s advising shippers to plan on spending twice as much, since it’s unclear where this is going.

Shippers who cannot afford the delays will increasingly look to convert ocean freight shipments to air freight, which will further increase shipping costs, says Shehrina Kamal, vice president of Intelligence Solutions at Everstream Analytics.

Ripple effect

Waiting times for vessels to berth at the Yantian International Container Terminal in Shenzhen have “skyrocketed” from an average waiting time of 0.5 days to 16 days, according to Kamal.

The backlog will have a compounding effect on other ports.

The problem is already building up at nearby ports as carriers start to divert, Kamal said. The port of Nansha in Guangzhou is experiencing an influx of cargo due to the diversions, and the congestion and vessel delays are expected to last another two weeks — if not more, she said. 

Compounded with the pandemic in India and Southeast Asian economies … this rise of Covid cases in Guangdong may contribute to higher inflationary pressure in other countries.

Zhang Zhiwei

chief economist, Pinpoint Asset Management

The knock-on effects will carry over to even neighboring provinces such as Guangxi, Yunnan, Hunan, Hubei, according to Kamal. 

Inflation fears

Beyond mainland China, the port at the financial center of Hong Kong has also been affected.

Cross border delivery have been possible there via trucking, but authorities recently tightened measures due to the pandemic. That means all cross-border trucks will need to undergo sterilization, among other measures, and that’s likely to delay cargo movement and processing overall, Kamal said. 

Overall, the turnover in the ports in Guangdong will remain slow in June, and even other parts of China would likely become more cautious, said Zhang from Pinpoint Asset Management.

That could lead to higher prices, even as investors fret over rising inflation and what it might mean for interest rates.

“Compounded with the pandemic in India and Southeast Asian economies … raising commodity and shipping costs, this rise of Covid cases in Guangdong may contribute to higher inflationary pressure in other countries,” he cautioned. 

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Asia-Pacific stocks set for mixed start after Wall Street record close

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SINGAPORE — Shares in Asia-Pacific looked set for a mixed start after the major indexes on Wall Street sailed to record closing highs last week.

Futures pointed to a higher open for Japanese stocks. The Nikkei futures contract in Chicago was at 28,230 while its counterpart in Osaka was at 27,910. That compared against the Nikkei 225’s last close at 27,548.

Australian stocks, on the other hand, looked poised to open lower. The SPI futures contract sat at 7,335.0, against the S&P/ASX 200’s last close at 7,394.40.

On the economic data front, Singapore’s industrial production figures for June are set to be out at 1:00 p.m. HK/SIN.

Stock picks and investing trends from CNBC Pro:

On Friday, the Dow Jones Industrial Averaged closed above 35,000 for the first time ever while the S&P 500 jumped 1.01% to 4,411.79 and the Nasdaq Composite gained 1.04% to 14,836.99. Friday’s moves upward saw all three major indexes stateside at new closing highs.

Currencies

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 92.885 following a recent bounce from below 92.8.

The Japanese yen traded at 110.53 per dollar, weaker than levels below 110 seen against the greenback last week. The Australian dollar changed hands at $0.7368, above levels below $0.732 seen last week.

Here’s a look at what’s on tap:

  • Singapore: Industrial production for June

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Stock futures hold steady ahead of a huge week of Big Tech earnings

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Traders working at the New York Stock Exchange (NYSE), today, Wednesday, April 21, 2021.

Source: NYSE

Stock futures opened little changed after the major averages finished the previous session at record closing highs and ahead of a busy week of earnings reports from technology’s heaviest hitters.

The Dow Jones Industrial Average eased by 5 points, or 0.01%. S&P 500 and Nasdaq 100 futures dipped 0.03% and 0.01%, respectively.

In the previous session, the Dow jumped 238.20 points, or 0.68%, to 35,061.55. The S&P 500 gained 1.01% to 4,411.79 and the Nasdaq Composite climbed 1.04% to 14,836.99.

All three of the major averages finished at record closing highs last week after the markets tumbled at the start of the week on concerns about the spread of the delta variant of Covid and how it would potentially hinder the economic recovery. The uncertainty briefly sent bond yields lower, and investors jumped into tech stocks. Both bonds and equities rebounded quickly by the end of the week.

Tech stocks rose last week on better-than-expected second-quarter earnings reports, as well as the continued spread of the delta variant. Twitter and Snap each surged Thursday following better-than-expected second-quarter earnings reports. Twitter ended Friday 3% higher, while Snap shot up 24%.

One of the busiest weeks of earnings reports is on deck in the week ahead, with Tesla kicking it off after the closing bell. Last week, CEO Elon Musk said the automaker would likely start accepting bitcoin for vehicle purchases again.

Big tech giants Apple, Alphabet and Microsoft are all set to report on Tuesday, and Google, Facebook, and Amazon will also report later in the week.

Investors will be watching the Fed’s two-day policy meeting, beginning Tuesday. The Federal Open Market Committee and the Board of Governors are expected to issue a statement on the stance of monetary policy Wednesday. On Thursday the Commerce Department will report second-quarter GDP data.

On Monday morning the U.S. Department of Housing and Urban Development will release new home sales data and the Federal Reserve Bank of Dallas will release its monthly business activity index for manufacturing in Texas.

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Disturbing actions by China signal cold war, Stephen Roach warns

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Economist Stephen Roach warns Beijing’s crackdown against U.S.-listed China stocks will have widespread market implications.

Roach, who is considered one of the world’s leading experts on Asia, believes the actions are signaling the early stages of a cold war.

“I am a congenital optimist when it comes to China. But I find these actions really quite disturbing,” the former Morgan Stanley Asia chairman told CNBC’s “Trading Nation” on Friday. “China is going after the core of its new entrepreneurial driven economy, and it’s going after their business models.”

According to Roach, the tensions between the world’s two largest economies could get to levels not seen since the early 1970s.

“Even if U.S. companies don’t trade directly with China, virtually everything they touch goes through global supply chains,” said Roach. “So, a chill in the U.S.-China relationship has significant implications for U.S. companies and for investors investing in U.S. companies. You can’t get away from the China connection.”

CNBC’s Jim Cramer is delivering a similar warning investors. He believes it’s too risky to invest in China stocks that trade on U.S. exchanges due to the regulation threat.

On Friday, Beijing regulators targeted China education stocks TAL Education and New Oriental Education and Technology. Their shares tumbled. The same thing happened with Didi, China’s leading ride-hailing company, earlier in the week.

Roach, now a Yale senior fellow, has been sounding the alarm on the contentious backdrop for months. On “Trading Nation” in April, he warned U.S.-China relations were eroding and the two countries were on the brink of a cold war. Now, Roach suggests a line has been crossed.

“These are actions that are really in getting to the core of what has been so exciting about China for a number of years,” Roach said. “They concern me a lot.”

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