Covid Outbreaks in China, War in Russia
As the two year mark since the first coronavirus lockdowns approaches, life in the United States is close to resembling a pre-pandemic world—at least on the surface. While mask mandates are being lifted and the rate of new cases is the lowest since March 2020, the supply chain is still struggling under the pressure of inflation and gas prices at all-time highs. The Federal Reserve has indicated they intend to raise interest rates to curb inflation, but factors from international partners have massive complications.
The global economy is bracing for a two-front fight between Russia’s assault on the Ukraine and new lockdown measures in China. How much these events will affect cargo movement around the world is dependent on high-stakes diplomacy and the efficacy of medical care.
Photo courtesy of Lysander Yuen via Unsplash.
Inflation from Chinese Lockdowns
Currently, China is dealing with its largest outbreak of coronavirus cases since the initial explosion in Wuhan. Mainly driven by the Omicron variant, infections have increased from a few dozen per day to over 5,000 on Tuesday, March 15th. These numbers may seem small compared to other countries, but the speed at which rates are rising and China’s strict zero-Covid policy is causing alarm.
In response to the new cases, over 37 million people in China are under lockdown. All non-essential workers are required to stay home in certain cities. This is leading to a complete shuttering of factories that produce semiconductor chips, computers and more. It is unclear how long the lockdowns will last, but it will be one week, at least. SEKO Logistics, a shipping company based in Shenzhen, revealed in a press release they “have not yet been advised of any official restrictions to Yantian Port [in Shenzhen],” but “no cargo will be able to load in Yantian from next week and vessels most likely will omit the port.”
With demand still high for all types of consumer goods, any delays lead to negative long term effects; as was evident last summer with the shutdown of the Meidong Terminal in Ningbo.
Inflation from Russian Sanctions
For many Americans, the most acute economic pain over the last month has been felt at the gas pump. The sharp rise in fuel prices stems from the powerful sanctions levied at Russia over their incursion into Ukraine.
Photo courtesy of Emmaus Studio via Unsplash.
Although only a small percentage of American oil comes from Russia, the sanctions have had a far-reaching effect in a global market. The average price of crude has jumped, due to Europe looking for fuel sources other than Russia. This comes at a time when oil production was significantly down—barrels of oil traded at a negative price point during the worst of the coronavirus stay at home orders. It will take time for supply and demand to stabilize after several rocky years.
“Everything that you have touches a truck,” said Cherri Harris, the CEO of Swint Logistics Group. With prices of diesel fuel over $5 per gallon, a single truck can spend more than $500 per day solely on fuel. The price increase is eating into profits and that cost is eventually passed onto the consumer.
Looking Ahead
This is an incredibly complex time for the global economy. Budgets and plans that have been in place for months have to shift at a moment’s notice. Even the Fed is reconsidering its timing to raise interest rates.
In China, the hope is an incredibly stringent lockdown will minimize the economic fallout for a new spike in cases. Optimistic predictions from the Chinese government give the impression they expect the lockdown to be lifted before the end of the month.
On the other hand, sanctions on Russian oil will likely last until they withdraw from Ukraine. There is only one person who can call Russian troops home and they seem impervious to international pressure, at least for the moment. Meanwhile, oil companies look elsewhere to make up the difference from the lack of Russian oil. Chevron, for example, has made it clear they are willing to work with Venezuela instead of Russia, if the Biden Administration lifts sanctions on the South American nation. Republicans highly critical of Venezuela put Biden in a precarious place politically as he attempts to work down gas prices creating a stalemate for the foreseeable future.
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