Alfred Dawes | The big shortage

Empty shelves in Walmart. Amazon out of stock. This is just the beginning. Container shortages worldwide and supply chain disruptions from factories to lorries threaten to cancel Christmas. Already prices are beginning to rise and are projected to do so continuing into next year. The lull in purchasing at the beginning of the pandemic has given way to a shopping frenzy that has maxed out factory and shipping capacity. As more developed countries emerge from the worst of the pandemic, their demand for goods is rising. This means smaller economies such as Jamaica cannot compete when ordering from the world’s manufacturers in Asia.

Last year, it cost about US$ 2,500 to ship a 40 foot container from China to Kingston. Now that same container costs upwards of US$ 15,000. What is more, the wait to get space on a ship is so long that it results in bidding wars that further drive up shipping costs. Shipping lines that have for years had to make do with slim margins now find themselves with a windfall of cash. Profits are soaring, with quarterly profits for some lines more than what was made in several preceding years combined.

Container prices have skyrocketed and leases for container ships hit new records almost every week. Raw materials are scarce and rising prices cut production volume while raising production costs. The semiconductor chip shortage for one has resulted in fewer cars being made and a corresponding increase in used-car prices. Chips are used in other electronic components and, with prioritisation of the electric car market in China, production of LED lights and many gadgets has been sacrificed.

As China is confronted with the Delta virus, the response is to enforce the same draconian lockdowns that were successful in eradicating the original Wuhan virus. Small outbreaks are met with extensive lockdowns. The closure of its largest port by tonnage, Ningbo, after a single worker tested positive for the delta variant, shows how far China is willing to go to stop its spread. At airports, the pile-up of freight is worsening as workers are rotated in shifts to allow for quarantine periods.

BALANCE LIVES

China does not know how to balance lives and livelihoods in dealing with the virus. They never had to. The approach was always total lockdown. As the Delta variant inevitably spreads, the Communist Party will have to make a tough decision as to whether to cripple an already hobbling world economy with their usual lockdowns or create a balance between production and restrictions.

On the other side of the Pacific, the busy Los Angeles port has empty containers sitting idly as empty ships race back to China to reload pricey cargo. The economics of shipping makes it more lucrative to run empty ships at full speed, to reload in Chinese ports, than to wait for soy, etc. to be loaded for the return trips. Congestion in American ports caused by backlogs in cargo movement by trains and trucks compound the situation. In Europe, the situation is not much different. Rising shipping costs and supply chain disruptions are also stymying recovery efforts.

With the massive increases in shipping costs, many have turned to air freight to move products. Passenger planes have been reconfigured to carry cargo. Ethiopian Airlines began by strapping freight packages to their empty seats when global travel ground to a halt. Today, they are one of the largest cargo fleets in the air. DHL, Fedex and other air cargo handlers have increased their capacities and old airplanes are being pulled out of retirement by visionary entrepreneurs.

With all the realignment of the global freight industry taking place, including record numbers of orders for container ships, there is no end in sight. Prices of goods will inevitably go up. Inflation at a time when the world’s money supply is loose and every country is struggling to recover from the global recession makes for interesting times in the boardrooms of central banks. How does one combat this inevitable inflation when raising interest rates may sabotage the recovery? This scenario is eerily reminiscent of 1920’s Germany’s hyperinflation. What will the exchange rate be between the Jamaican and US dollars when inflation in the US continues to trend higher?

EYES ON DELTA VIRUS

All eyes are on the public-health disaster caused by the Delta virus. Very little warning is being sounded about the impending economic impact of the agglomeration of scenarios discussed above. When filling a container with goods for the poor costs US$ 3,000 and US$ 20,000 to ship, will our merchants bother to invest in such items? Will their prices adjust to reflect the current climate, or will they be just missing for stalls and shelves?

Whatever the outcome, this is not going to be a merry Christmas for many. With frozen wages, if goods are absent or inflated out of reach, many Jamaicans who have not been directly impacted by COVID-19 will start to feel the pinch. Some who saw the storm brewing will be sitting pretty if they positioned themselves to take advantage of the unfortunate circumstances. Yet, with all the misery surrounding them, the taste of success cannot be truly savoured.

As 3.8 million Americans lost their homes in the 2008 collapse of the housing market, medical doctor turned hedge fund manager Michael Burry made over US$100M. COVID-19 has already minted many millionaires and multiplied the wealth of the already super several times over. There is still hope in a crisis but, if yuh nuh have on socks, yu cyaa draw it up!

Dr Alfred Dawes is a general, laparoscopic, and weight-loss surgeon; fellow of the American College of Surgeons; Follow him on Twitter @dr_aldawes. Send feedback to columns@gleanerjm.com and adawes@ilapmedical.com.