Traverse, go, provide thy money


A year ago, no one would have listed “container shortage” as one of the primary constraints in global trade. But the fact is that there is acute shortage of containers in global supply chains and it is severely constricting the global trade. This has also led to significant rise in logistics costs. In that sense, this condition in global supply chain may at least qualify to be a grey swan (if not black).

There are multiple reasons for shortages of containers in global supply chain. The prominent amongst them being the following:

(a) Chinese economy has recovered faster than any other major economy in the world. The Chinese exports to the western countries have mostly normalized whereas western countries are not in a position to export the things back. This has led to the empty containers being stuck on major western ports.

(b) Chinese exporters are paying huge premium for empty containers. Consequently, it has become profitable for shipping lines to transport empty containers to China against transporting goods between other ports.

(c) Many producers used on-sea ships for warehousing surplus produce during the worldwide lockdown. Many containers and ships may still be stuck with such “no-where to go” cargo.

(d) Turnaround time at many major ports has increased materially due to congestion.

(e) Limited operational air freight capacity has also led to higher demand for shipping containers.

This shortage of container is hampering global trade and businesses in more than one ways. For example consider the following-

  1. Many Indian companies have reported lower exports in 3QFY21 due to container shortages. The cost of shipping has increased materially due to premium pricing of containers. Perishable goods waiting to be shipped at ports are getting damaged.
  2. Food prices across the globe have risen substantially despite overall good production. For example, despite bumper sugar production in India, the global sugar prices have risen materially as Indian producers are not able to ship the allotted quota of sugar exports. Canada and some African countries are stuck with stock of pulses.
  3. Large e-commerce companies seem to be worse affected by container shortages, as they are not able to fulfil cross country orders timely. Global corporations like Ikea have termed the present situation as “global transport crisis” (see here).
  4. Many automobile manufacturers and electronic product manufacturers have complained about severe shortage of components. The waiting time for delivery of many popular vehicles in India is now in excess of 4 months. Even the lead time for servicing of TVs and Washing Machines is running into weeks due to shortage of spares.
  5. The working capital requirements for many exporters who are unable to ship their produce timely may increase materially impacting their margins for few quarters.

This unexpected phenomenon could also be one of the reasons for sharp rise in inflationary expectations across the globe leading to a massive reflation trade in bulk commodities like iron ore, steel, fertilizers, coal and coke etc.

The questions to be asked therefore are

  1. Whether this “global transportation crisis” (GTC) will last long enough to derail the still nascent economic recovery?
  2. If this GTC is resolved in next couple of months, would the “reflation” trade collapse unceremoniously, or this trade has more legs besides logistic constraints?
  3. If GTC is not resolved in next few months, shall we see a precipitous rise in global cost of capital due to high inflation, and therefore a sharp correction in equity prices?

Of course it is sort of a perfect storm. Negotiating this is very critical for producers, traders, investors and central banks. Whether they would be able to do that will only be known in due course. For now, we can only quote Shakespeare, “There are many events in the womb of time which will be delivered. Traverse, go, provide thy money. We will have more of this tomorrow. Adieu.” (Othello, Act 1)


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