Since the second half of last year, advances in vaccination programs and the progressive lifting of mobility restrictions have contributed to a significant recovery in the aggregate demand for goods and services globally.
However, the sudden and prolonged halt to activity generated by the pandemic during much of 2020 and the differences in regional policies to control the transmission of Covid-19 contributed to a slow and uneven start-up of many global production chains.
This situation generated strong disruptions in global supply chains, causing bottlenecks in the supply of a wide variety of goods that are traded internationally. In some sectors, the disruptions were of such magnitude that lags are still felt.
One of the hardest hit sectors within global supply chains was that of maritime freight transport. The epicenter was in Asia, which closed activities before the rest of the world.
However, although Asia was one of the first to open its activities, there are multiple cases in which intermediate goods produced in Asia have been sitting in containers in the ports of the United States and Europe waiting to be integrated into production processes that in turn they were detained due to the lack of other inputs.
This has generated a congestion of ships waiting to be unloaded and the saturation of ports with containers waiting to be picked up by land transport to reach the factories.
Although the situation in international container trade is still far from its pre-pandemic level, there are positive signs in some links of the chain.
According to data from the ports of Los Angeles and Long Beach in California (which handle approximately 40% of all container volume in the United States), the number of ships waiting their turn to unload has decreased from a peak of more than 100 in January of this year, to 60 at the end of March.
It is worth clarifying that this number is still well above the normal range of 20 to 30 ships. Likewise, the number of days in port to unload has decreased from a peak of 8.5 days to 6.
Additionally, the Freightos Baltic Index (FBX), which measures the cost of a standard forty-foot container, fell from a high of $11,109 per container in September 2021, to $9,048 at the close of last week. However, the cost is still almost 6.3x higher than the pre-pandemic level of 1,446.
Although these signs are positive, the gradual process of normalization of global production chains faces new challenges.
The first is generated by the Russian invasion of Ukraine and the economic sanctions imposed on Russia. The second is the “Covid-zero” policy in China that has led to new temporary closures of the production plant in some cities that are important manufacturing centers.
The magnitude of the impact of these new shocks will largely depend on their duration.
In the case of temporary closures in China, these could be temporary as China moves forward with its vaccination plans and if the Chinese government chooses to gradually relax the “Covid-zero” policy due to its considerable costs in terms of economic growth.
The most important risk comes from the shock caused by the war in Ukraine and the sanctions against Russia. Although the impact is mainly on the supply chains of energy and food raw materials, the effect on maritime and air freight transport is not minor.
Managing Partner of EP Capital, SC
Without Borders
Joaquín López-Dóriga Ostolaza is the Managing Partner of EP Capital, SC, a consultancy specialized in mergers and acquisitions founded in 2009.
He is a graduate of the Bachelor of Economics from the Universidad Iberoamericana, where he graduated with honors and the highest average of his generation. He has a Master’s degree in Economics from the London School of Economics, where he was awarded the British Council Chevening Scholarship Award.