Supply chain update

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Do you know how many containers are floating in the sea from Shanghai to Rotterdam, baking in marshalling yards or collecting diesel smoke film in traffic jams?

of course not. No one does it. The inventory in transit around the world is beyond imagination, not to mention the antique information system in the shipping industry.

All these things that are tracked and delayed intermittently, when it finally reaches where it should be, it looks like it will generate a large enough heap to trigger a severe inventory recession. In this case, the demand for goods drops and accumulates. The inventory is reduced. The supply chain practitioners I have been interviewing believe that by the Lunar New Year, problems such as port backups, unavailable trucks, Covid-19 restrictions, and insufficient warehouse staff skills will be more or less resolved.

That is February 1st next year. Therefore, now you have an educated guess as to when the North American economy will decline. China seems to have slowed down. The words “Europe” and “prosperity” have not been linked for a long time.

The public’s perception of the causes of the economic recession has deviated from the concept of surplus of goods for sale. Most people will blame Wall Street or the party in power in their country. Or it may be the opposition because it is slowing down policy implementation.

Some working contemporary central bank economists have discussed the possible role of inventory “adjustment” in the recent economic downturn.But this won’t be the headline news for the central bank governor’s star transfer in Jackson Hole, Wyoming in late August.

Inventory recession is coming? No, it means that official finances cannot “control” all “the tools they need.” But what can the US Federal Reserve or the European Central Bank do with the double and triple orders caused by the retirement of truck drivers and bridge closures? When retail customers only want one, buy two containers of rubber bath ducks? That would be a truly unconventional asset purchase plan.

However, the container ship owner can finally enter through the front door without being caught by the creditor’s bailiff. Each operator in the chain ultimately has a wealth of cash. As a logistics analyst said: “For me, the more chaotic the better.”

Hamburg ship broker Harper Petersen & Co reported that its Harpex container ship freight index has risen to 3,143 from 1,154 at the beginning of the year. Shipowners have a new source of enthusiasm for new construction funding, which is a good thing since the retreat of German ship investors in the past decade.

The container owner is creating it. As Lars Jensen of Vespucci Maritime in Copenhagen pointed out: “Under normal circumstances. A container will be shipped from the Shanghai factory to Chicago within 35 days. Now it takes up to 73 days before it must be returned to the same container (usually empty).” Not surprisingly, the spot rent of containers from China to the West Coast of the United States has risen from the already high $4,000 at the beginning of the year to nearly $10,000 in the past few weeks.

Of course, most shippers and shipping companies do not want to pay immediate freight. Triton International is a container leasing company listed in the United States and owns approximately 40% of the container leasing market. Its net income in the second quarter was US$144.2 million, an increase of 148% over the same period last year. The company eventually received an investment grade rating (minus three B), even after ordering more than 1.1 million TEUs (equivalent to 20-foot container units) of new boxes to increase the 7 million they already had on hand. a little.

Brian Sondey, Triton’s chief executive officer, said that due to the urgent need for containers, the company was able to roughly match the term of the new lease (13 years) with the accounting assumptions for asset life. As shipping companies’ current high income has improved their credit, counterparty risk has declined.

Sondey is philosophical about the inevitable changes in the market and the source of some current demand. “Professor Sterman’s view on supply chain dynamics is absolutely correct,” he said. John Sterman of the Massachusetts Institute of Technology is known for modeling hoarding and “phantom ordering” among supply chain participants, even though this behavior is irrational.

During the upcoming supply chain turmoil, participants can begin to gather more information about when and where they will arrive. This may help alleviate future inventory volatility and recession.