Global shipping costs are moderating

Lockdowns, labor shortages, and strains on logistics networks led to shipping-cost increases and significantly lengthened delivery times, though those pressures are easing. The Chart of the Week shows global container rates began to pull back from their record in September 2021.

Since then the rates have declined by 16 percent, mostly due to falling rates for trans-Pacific eastbound routes, the main sea link from China to the United States.

According to IMFBlog, shipping costs soared over the past year as the consumers unleashed pent-up savings to buy new merchandise, while the pandemic continued to snarl the world’s supply chains. Container rates have more than quadrupled since the start of the pandemic, with some of the biggest gains concentrated in the first three quarters of last year.

The drop indicates that strong goods demand is diminishing after the traditional peak shipping season, which is typically from August to October. In addition, the US recently ordered some ports to expand operating hours and boost efficiency to reduce congestion and ease supply bottlenecks.

Although rates have subsided, they may remain elevated through the end of the year. Some underlying supply constraints do not have immediate fixes. Backlogs and port delays, labor shortages in related occupations, supply chain disruptions moving inland, and shipping industry challenges such as the slow capacity growth and consolidation that concentrated the market power of a few carriers. If the pandemic is controlled in the future, the demand for tradable goods might gradually decline as some service-providing sectors, such as travel and hospitality, recover.

Higher shipping costs and goods shortages are expected to boost merchandise prices. The United Nations Conference on Trade and Development (UNCTAD) projects that if freight rates remain elevated through 2023, global import price levels and consumer price levels could rise by 10.6% and 1.5%, respectively. This impact would be disproportionately larger for small, developing islands which heavily rely on imports that arrive by sea.

Higher freight rates will also result in larger increases in the final price of low-value-added products. Smaller developing economies that export many of these goods could become less competitive and face difficulties with their economic recoveries. Moreover, the final prices of products that are highly integrated into global value chains such as electronics and computers will also be more affected by higher freight rates.

Returning to pre-pandemic shipping rates will require greater investment in infrastructure, digitalization in the freight industry, and implementation of trade facilitation measures.

 

Hamas hails Iranian support for Palestinians

Palestinian resistance group Hamas has hailed the position of the Islamic Republic of Iran in support of Palestine. In a recent meeting with Iranian Foreign Minister Hossein Amir Abdollahian in Doha, a delegation of Hamas, headed by its Political Bureau Chief Ismail Haniyeh, appreciated the Iranian backing. 

The Hamas delegation addressed the developments related to the Palestinian cause, particularly with regard to the situation in occupied Jerusalem and the West Bank, Palestinian detainees in Israeli prisons, and the 15-year Israeli siege on Gaza. 

The Iranian minister discussed the developments concerning a number of matters, including regional alliances and the Vienna talks, reiterating his country's stance in support of the Palestinian people and resistance.      

Hamas delegation welcomed the endeavors being made to achieve unity among Arab and Muslim nations, especially the efforts being exerted by Iran and Saudi Arabia. 

Besides the Hamas chief, the meeting was attended by members of Hamas Political Bureau Khalil al-Hayya and Mousa Abu Marzouq, in addition to Majdi Abu Amsheh, Head of Haniyeh's office.

The Iranian Foreign ministry said in a statement that during the meeting, Amir Abdollahian outlined the Islamic republic’s principled policy toward the issue of Palestine as a plight in the heart of the Islamic Ummah created by the child-killing Zionist regime which enjoys support from the West.

He also condemned the brutal crimes of the Zionist occupiers against al-Quds, al-Aqsa Mosque, Gaza and occupied Palestinian territories as well as the regime’s aggression and atrocities against the Palestinian people and sanctities.

Amir Abdollahian reaffirmed Iran’s support for the legitimate defense of the Palestinian people and resistance against the occupation of the Zionist regime. 

Haniyeh, for his part, appreciated Iran’s support for the Palestinian people in their struggle against the Zionist regime’s continued aggression.

He also called on the Muslim and Arab world as well as the international community to adopt a decisive stance against the Israeli regime’s violations.

The meeting was part of Amir Abdollahian’s high-level meetings in Qatar, where he met with the emir and the foreign minister of the tiny Persian Gulf nation. 

In his meeting with Qatar’s Emir Sheikh Tamim bin Hamad Al Thani, Amir Abdollahian extended the Iranian President’s greetings to the Qatari leader. He examined the latest developments in bilateral ties in political, security, trade and economic areas. Amir Abdollahian referred to the existing capacities for expanding economic relations between Iran and Qatar, underlining the need for forging cooperation in economic areas given the existing advantages of Iran in this regard. 

The Iranian foreign minister further outlined the current Iranian administration’s approach to relations with neighboring countries and emphasized the exchange of delegations at high levels between the two countries for consultations.

Amir Abdollahian also underscored the regional views of Iran and declared Tehran’s readiness to develop interaction with regional nations in bilateral and multilateral ways.

The top Iranian diplomat then spoke about the Vienna talks over removing the oppressive sanctions against Iran as well as the issues related to Afghanistan and Yemen. The Qatari emir also outlined his views regarding these matters.

Need for resolving Kashmir conflict

Aizaz Ahmad Chaudhary has described the life of a Kashmiri in a unique manner. He asks the reader to imagine he/she is a Kashmiri born in Srinagar on January 05, 1949. By this time the reader is 73 years old and has completed nearly every phase of life. 

Decisions were taken on what to study, where to work, how to contribute, and preparing to retire, a full circle of life. But at every stage, the reminder was that he/she was not free and under Indian occupation, a kind of colonial rule. It is the story of every man and woman who lives in the Valley of Kashmir or the Jammu region, who feels helpless as well as angry.

For all Kashmiris, January 05 is a reminder that the promise was made to them on this date in 1949, which remains unfulfilled. It is the day, the United Nations Commission on India and Pakistan adopted a resolution calling for a free and fair plebiscite in Jammu and Kashmir. Ever since, like a ritual, the Kashmiris mark self-determination day, hoping that the world would listen. But year after year, the frustration has mounted. It is understandably getting hard for the Kashmiris to keep faith in international justice, or even stay optimistic. Yet the Kashmiris struggle goes on, the torch of freedom remains aloft.

The right of a nation or community to self-determination is an important principle of the UN Charter. When the UN was born in 1945, it had only 73 members. Over the years, scores of nations attained their independence thanks to the principle of self-determination, swelling the UN membership to 193. The two peoples that could not access their right to self-determination are the Palestinians and Kashmiris.

Most of the Kashmiris have close relations with the people living in central and northern Punjab. The rivers flow down from Kashmir to present day Pakistan for centuries. All roads from the Kashmir Valley head towards northern Punjab. Kashmir’s mandi (market) had traditionally been Rawalpindi. How can all these links be cut off simply because India does not want to let Kashmiris decide how they wish to live? One is completely surprised that even after seven decades of Kashmiri resistance against Indian rule, the Indian leadership is unable to deduce that the Kashmiris simply do not wish to live with India.

In the past two and a half years, the situation has taken an ugly turn. The Indian government abrogated Article 370 of the Indian constitution, robbed the Kashmiris of their statehood, and started inflicting further excesses on these freedom-loving people. Kashmiris often wonder what end goal India has in mind for Kashmir. Can it realistically maintain its colonial-like rule over eight million people? Perhaps not! India is already experiencing centrifugal tendencies in several parts of the country; how would India keep its internal stability by continuing its occupation of another 8m agitated souls?

Some analysts have argued that India does not wish to let Kashmiris exercise self-determination because if that happens, other regions in the country would also demand freedom. This argument contradicts the historical process. No nation can forever rule an unwilling population. Some strategists assert that Kashmir’s location is strategically important for India. Again, how can an unwilling population be a strategic asset for India? Some ambitious BJP enthusiasts are excited that after the actions of August 2019, and the introduction of a new domicile law, Kashmiris would no longer be a Muslim-majority community. This approach too would not work as all Kashmiris, including pro-India factions, have united in their opposition to the assault on Kashmiri statehood and identity.

It is important for the Indian leadership and its thought leaders to think this through. Ruling a population by force, undermining their identity, and suspecting each Kashmiri who aspires self-determination for his people, will never consolidate the Indian occupation of Kashmir.

A better alternative is to find ways to resolve the Kashmir dispute with Pakistan in accordance with the wishes of the Kashmiri people. The UN Security Council resolutions provide a reasonably good framework to resolve this conflict.

Can we all imagine how life would have been for every South Asian, if India had chosen the path of leading the region, not by coercion, but by mutual respect and nurturing interdependence? Today, South Asia is the least integrated and most conflict-ridden region. Can all this change? Perhaps a resolution of the Kashmir dispute could be a good beginning to defuse tensions, and let South Asia emerge as a region of peace and tranquility. Will India listen to the voice of Kashmiris? Not sure, but one does hope that one day it will.

Heavy rains in Brazil disrupts iron ore production

According to a Reuters report, heavy rainfall in southeastern Brazil has prompted miners including Vale SA to suspend some operations after downpours caused deadly floods in the northeast. 

Rainfall is expected to remain heavy this week in most of top mining state Minas Gerais, after runoff closed roads and railways.

The rains may also have contributed to the dramatic collapse of a canyon rock face in the state on Saturday, killing 10 people visiting a waterfall on boats.

In the northeastern state of Bahia, flooding displaced about 50,000 families and killed some two dozen over the holidays.

Vale said on Monday it has partially suspended operations at its Southeastern and Southern iron ore systems due to the bad weather, but reaffirmed its 2022 production target as the Northern system was not affected.

Samarco, a joint venture between Vale and BHP also cut back operations in its Germano complex, producing at an estimated 50% of capacity until weather allows it to ramp up.

Brazilian steelmakers Usiminas and Companhia Siderurgica Nacional (CSN) also halted operations of their mining units.

Anglo American said its Minas-Rio system continued to operate as planned during the rainy season.

Over the weekend, France's Vallourec suspended production from its Pau Branco mine after heavy rainfall caused a dike to overflow.

"We see the news as potentially negative for the entire mining sector, as it could result in new regulations to suspend existing operations or delay new projects," analysts at XP Investimentos said in a research note.

BTG Pactual analysts said economic impacts could be muted if normal operations are restored quickly, but noted it all depends on how long the heavy rainfall will last.

"We estimate there could be more than 100 million tons of annualized iron ore supply at risk at this stage in Brazil, which is a relevant number ‑ roughly 7% of seaborne supply and about 30% of Brazilian supply ‑learly the stakes are high and we could see impacts on short-term iron ore movements," they said.

INTERRUPTED RAILWAYS, CLOSED HIGHWAYS

Vale said in a securities filing that train circulation at its Vitoria-Minas railway was partially interrupted by the rains, halting output at the Brucutu mine and the Mariana complex due to a lack of transportation.

Both mines are part of Vale's Southeastern system, along with the Itabira complex, where production was not affected.

In the Southern system, Vale said all of its complexes had to halt production because key highways BR-040 and MG-030 were closed.

Vale said its Northern System is still operating as planned, and maintained its 2022 iron ore production forecast at 320-335 million tons. It noted its production plan takes into account the seasonal rainfall impact.

The miner also said the rains had not changed the alert level for any of its tailing dams which are under constant, "real-time" monitoring.

"While Vale did not change its production guidance for 2022, we believe that the market could start to project volumes closer to the low end of the range," Itau BBA analysts said, noting that iron ore prices could be supported at their current high levels.

Vale's two halted operations accounted for about 31% of its output in the first nine months of 2021, the Itau BBA analysts said. A two-week halt in these operations could represent an impact of about 3 million tons for the company, according to their preliminary calculations.

Steelmaker Usiminas announced a stoppage at its mining subsidiary Mineracao Usiminas (MUSA) due to weather, but said it had enough inventory of raw material to avoid disruption.

The company also said its Barragem Central tailings dam, which has been inactive since 2014, reached alert level 1 - an initial warning that does not mean a safety breach was noted.

CSN and its steel mining subsidiary CSN Mineracao SA announced a halt to operations of the Casa de Pedra mine, but said they are expected to resume in coming days.

They said port operations at the Itaguai coal terminal, located in the neighboring state of Rio de Janeiro, were also suspended due to excessive rains.

Brazil's regulatory National Mining Agency (ANM) suspended operations at French steel pipe maker Vallourec's Pau Branco iron ore mine in the state after a dike overflowed, cutting off a federal highway. There were no reported injuries.

"After the dam incidents of the past, we welcome the zero tolerance approach that miners are taking in the country to minimize operational risks, which we consider the prudent approach," BTG Pactual said.

Can emerging markets cope with the shift in US Fed policy?

For most of last year, investors priced in a temporary rise in inflation in the United States given the unsteady economic recovery and a slow unraveling of supply bottlenecks. Now sentiment has shifted. Prices are rising at the fastest pace in almost four decades and the tight labor market has started to feed into wage increases.

According to a report by International Monetary Fund (IMF), the new Omicron variant has raised additional concerns of supply-side pressures on inflation. The US Fed referred to inflation developments as a key factor in its decision last month to accelerate the tapering of asset purchases.

Inflation is likely to moderate later in year 2022 as supply disruptions ease and fiscal contraction weighs on demand. The Fed’s policy guidance that it would raise borrowing costs more quickly did not cause a substantial market reassessment of the economic outlook.

The history shows that the effects on emerging markets benign if tightening is gradual, well telegraphed, and in response to a strengthening recovery. Emerging-market currencies may still depreciate, but foreign demand would offset the impact from rising financing costs.

Spillovers to emerging markets could also be less benign. Broad-based US wage inflation or sustained supply bottlenecks could boost prices more than anticipated and fuel expectations for more rapid inflation. Faster Fed rate increases in response could rattle financial markets and tighten financial conditions globally.

These developments could come with a slowing of US demand and trade, which may lead to capital outflows and currency depreciation in emerging markets.

The impact of Fed tightening in a scenario like that could be more severe for vulnerable countries. In recent months, emerging markets with high public and private debt, foreign exchange exposures, and lower current-account balances saw already larger movements of their currencies relative to the USD.

The combination of slower growth and elevated vulnerabilities could create adverse feedback loops for such economies, as the IMF highlighted in its October 2021 releases of the World Economic Outlook and Global Financial Stability Report.

Some emerging markets have already started to adjust monetary policy and are preparing to scale back fiscal support to address rising debt and inflation. In response to tighter funding conditions, emerging markets should tailor their response based on their circumstances and vulnerabilities.

Those with policy credibility on containing inflation can tighten monetary policy more gradually, while others with stronger inflation pressures or weaker institutions must act swiftly and comprehensively.

In either case, responses should include letting currencies depreciate and raising benchmark interest rates. If faced with disorderly conditions in foreign exchange markets, central banks with sufficient reserves can intervene provided this intervention does not substitute for warranted macroeconomic adjustment.

Nevertheless, such actions can pose difficult choices for emerging markets as they trade off supporting a weak domestic economy with safeguarding price and external stability. Similarly, extending support to businesses beyond existing measures may increase credit risks and weaken the longer-term health of financial institutions by delaying the recognition of losses. And rolling back those measures could further tighten financial conditions, weakening the recovery.

To manage these tradeoffs, emerging markets can take steps to strengthen policy frameworks and reduce vulnerabilities. For central banks tightening to contain inflation pressures, clear and consistent communication of policy plans can enhance the public’s understanding of the need to pursue price stability.

Countries with high levels of debt denominated in foreign currencies should look to reduce those mismatches and hedge their exposures where feasible. And to reduce rollover risks, the maturity of obligations should be extended even if it increases costs. Heavily indebted countries may also need to start fiscal adjustment sooner and faster.

Continued financial policy support for businesses should be reviewed, and plans to normalize such support should be calibrated carefully to the outlook and to preserve financial stability. For countries where corporate debt and bad loans were high even before the pandemic, some weaker banks and nonbank lenders may face solvency concerns if financing becomes difficult. Resolution regimes should be readied.

Beyond these immediate measures, fiscal policy can help build resilience to shocks. Setting a credible commitment to a medium-term fiscal strategy would help boost investor confidence and regain room for fiscal support in a downturn. Such a strategy could include announcing a comprehensive plan to gradually increase tax revenues, improve spending efficiency, or implement structural fiscal reforms such as pension and subsidy overhauls (as described in the IMF’s October Fiscal Monitor.

Finally, despite the expected economic recovery, some countries may need to rely on the global financial safety net. That may include using swap lines, regional financing arrangements, and multilateral resources. The IMF has contributed with last year’s US$650 billion allocation of Special Drawing Rights, the most ever.

While such resources boost buffers against potential economic downturns, past episodes have shown that some countries may need additional financial breathing room. That’s why the IMF has adapted its financial lending toolkit for member nations.

Countries with strong policies can tap precautionary credit lines to help prevent crises. Others can access lending tailored to their income level, though programs must be anchored by sustainable policies that restore economic stability and foster sustainable growth.

While the global recovery is projected to continue this year and next, risks to growth remain elevated by the stubbornly resurgent pandemic. Given the risk that this could coincide with faster Fed tightening, emerging economies should prepare for potential bouts of economic turbulence.

Ukraine and Belarus potential sources for a United States-Russia confrontation

Geopolitical Futures claims that one of its top priorities is to know what is coming and ensure its subscribers are informed on important issues before they hit the mainstream. 

Till lately, major news outlets were reporting that Russia was amassing troops at its border with Ukraine; an important buffer country, in an effort to reclaim former Soviet Union territory.

 Lately, Geopolitical Futures has shared an excerpt of that original forecast with the readers. The highlights are:

Ukraine and Belarus are the two places with the potential for a US-Russia confrontation. Ukraine is at risk of falling apart. Russian influence in Belarus will threaten Poland.

Ukraine is caught in the crossfire of the United States, the European Union and Russia. Nord Stream 2 and TurkStream are expected to be completed in 2019. These pipelines, which connect Russia’s supply of natural gas to the European Union and Turkey, circumvent traditional and lucrative natural gas transit routes through Ukraine, giving Moscow further leverage over the government in Kiev.

The conflict in eastern Ukraine is frozen but still volatile, and it is unclear whether Ukraine can govern what is left of its territory. Russia is better prepared for intervention there than the West is, but Moscow is betting that Ukraine’s internal dysfunctions will eventually bring much of the country, if not the government itself, back into its orbit.

At the same time, Ukraine is preparing for a presidential election, scheduled for March. Polls show no clear frontrunner, there’s a real chance the political conflict that follows will entangle outside powers, just as it did after the 2014 elections.

Belarus is also concerning. For years, Belarusian President Alexander Lukashenko has juggled relations with the West and Russia, leaning further east or west as necessity dictates. Right now, he is engaging more with the West, much to the chagrin of Russia, which is concerned about increased US military presence in Poland and Romania. Lukashenko has intimated that if a permanent US military base is installed in Poland, Minsk and Moscow may have to respond together. He has insisted that Russian troops will not be stationed in Belarus.

In Belarus, as in Ukraine, Geopolitical Futures does not expect the situation to come apart at the seams – but the competitive forces on both sides are creating tremendous pressure, which, in the shorter term, makes precise developments unpredictable.

Growing port congestion in China and United States

The health of the global supply chains in the next few weeks may partly hinge on the vitality of the trucking sector in a key port near Shanghai. A suspension of trucking services in several parts of China’s Zhejiang province has slowed the transportation of manufactured goods and commodities through one of the world’s most important ports.

There are strict controls on lorries moving goods to or from the Beilun district in Ningbo after the discovery of several cases of Covid-19 in the area, shipping line Maersk said in a recent customer advisory.

This suspension, along with restrictions on truckers in some areas in and around Zhejiang, has halted operations at some yards and warehouses at Ningbo port.

Ports around the world have been struggling to ease congestion as the pandemic heads into a third year. Ningbo is one of the world’s top container gateways and a crucial part of supply chains that connect factories in East China to consumers of automobiles, machines, electronics and toys in the United States, Europe and elsewhere. 

A week’s delay of trade at Ningbo’s port could cost US$4 billion including exports of circuit boards and clothes, according to consultant Russell Group. Some polyester factories in Ningbo have stopped work because they can’t receive raw materials via truck or ship out goods, according to analysts at Wood Mackenzie. Road deliveries of liquefied natural gas, an important fuel for industries unconnected to pipelines has also slowed.

The port was partly shut for weeks last August after a Covid-19 outbreak, causing a slowdown in exports, disruptions and congestion across supply lines.

United States

The Port of New York and New Jersey has largely handled the pandemic-driven jump in imported goods without significant shipping bottlenecks forming. But recently a queue of container vessels waiting to offload has started to form off the coast of Long Island. 

The culprit, the Omicron variant, is keeping hundreds of longshoremen out of work each day because of either illness or the need to quarantine after coming in close contact with an infected person. “We have seen a spike in the number of labour going out into quarantine,” Port of New York and New Jersey Authority Director Sam Ruda, told Bloomberg in an interview.

According to the port authority’s website average waiting time for containerships at the port had increased to 4.75 days in the last week of 2021 as compared 1.6 days as an average for the year. The number of longshoremen unavailable for work was reported to be running at about 350 per day. As of January 07, 2022 the port authority said 11 containerships were currently at anchor waiting to call its terminals. Two of the vessels had been waiting since January 01, 2022.

The port has a seen a significant growth in volumes over the pre-pandemic year of 2019 with in handling 8.12 million teu by the end of November 2021, as compared to 7.47 million teu for the whole of 2019. As compared to US west coast gateway ports of Los Angeles and Long Beach, the east coast port was largely unaffected by delays and congestion last year. In addition to Covid related worker quarantines last week the port also saw disruption to operations from heavy snow storms.