With global supply chains stretched thin, an unprecedented amount of fiscal stimulus circulates the world resulting in sharp demand spikes for raw materials, causing commodity and or product shortages, port congestion, container shortages, soaring shipping rates, and even delayed shipments.
Robust demand for commodities on the backs of record fiscal stimulus has tightened the global market for dry-bulk vessels. Shipments of timber and grain are being loaded on larger ships generally reserved for other cargo.
According to Platts shipping data, timber from Uruguay and grain from Brazil have been loaded on Capesize vessels, the largest dry cargo ships. These two commodities usually are transported worldwide via smaller vessels such as Panamax.
Panamax
Genco Shipping & Trading Ltd. Chief Executive John Wobensmith told Bloomberg that "it just shows you how tight the overall dry-bulk market is, and it's only going to get tighter." He said soaring shipping rates are "not something that is for the next three months - this has got legs going well into 2022 because of the low supply situation."
Wobensmith said dry-bulk freight rates had averaged around $18k per day this year, up 40% from last year. Rates are expected to continue to climb into the second half of the year as volumes of commodities sourced from emerging markets will remain elevated.
Goldman Sachs' economist Jan Hatzius agrees with Wobensmith's view of supply chain distress extending into 2022. For more on Goldman's perspective, read their latest note to clients titled ""Things Are Out Of Control" - There Is A Shortage Of Everything And Prices Are Soaring: What Happens Next."
Even before the virus pandemic disrupted global supply chains, the dry-bulk industry was already under pressure, and ports observed declining cargo deliveries, according to Gerry Craggs, managing director at Stemcor S.E.A. Pte Ltd. It was only when government stimulus across the world supercharged demand in a way that supply chains were caught completely off guard with new orders.
"We're in the phase of fiscal stimuli virtually everywhere in the world," Craggs said in an interview Friday. "It's driving up demand for virtually everything, and we see that effect in the steel sector and in commodities sectors."
Readers may recall we outlined how central banks and governments have overstimulated the global economy that will continue to exacerbate supply-chain disruptions.
Lars Mikael Jensen, head of Global Ocean Network at A.P. Moller-Maersk, the world's largest shipping company, recently warned he has "never seen anything like this," while referring to the disruption of the global supply chain.
More disorder nears as President Joe Biden's $1.9-trillion relief bill is making its way into the economy, expected to turbocharger consumer demand for products made overseas, which will only result in additional stress on the global supply chain.
Bloomberg Intelligence analyst Lee Klaskow noted last week that dry bulk had begun 2021 on a "high note. China and an expected global economic recovery have set up one the strongest opening quarters for dry-bulk demand in a decade."
The lesson to be learned is that global supply woes are being amplified by government and central bank interventions to save the global economy. As a result of letting economies run hot, inflationary expectations worldwide are moving higher as government bond yields soar.
Tyler Durden Tue, 03/23/2021 - 21:45
