Supply Chain Snarls Finally Appear To Be Easing

The global economy is proving resilient in the first two months of 2023. Supply chain snarls are easing, while demand conditions are neither hot nor cold. The post-Covid-19 recovery is on shaky ground as the world awaits a China recovery. 

Bloomberg pointed out that "a large number" of container ships are "positioned near China, waiting for a renewed flow of exports as the world's second-largest economy recovers from Covid Zero restrictions." 

"It makes sense to be close to the main export centers, to be in a ready-to-go position," Simon Heaney, senior manager of container research at maritime consultant Drewry, said. 

Drewry data shows unused vessel capacity began inching up in the second half of 2022 and has since hit the highest level since late 2020. 

Source: Bloomberg 

A slowdown in shipping comes as major central banks sent interest rates sky-high to tackle out-of-control inflation. This has led to falling global demand for goods and services. 

Spot container freight rates have crashed in the last year. 

Source: Bloomberg 

Many investors have bet on a Chinese recovery since Beijing disbanded Covid restrictions late last year. But on Tuesday, the Chinese Communist Party warned the foundation of economic recovery is not yet solid, according to Reuters. 

After a three-day meeting, a communique released by the Communist Party's Central Committee said the economy still faces triple pressures, including demand contraction, supply shock, and sliding expectations. 

FreightWaves pointed out last week, "an unprecedented flood of new container ships is about to enter service." This would further increase unused vessel capacity as a welcoming sign of lower container rates. 

One thing is clear: The world has entered a period of immense economic uncertainty with no definitive timeline for a robust China recovery. Plus, ultra-hawkish central banks worldwide are dampening demand. 

Frank Andersen, head of Asia at maritime data provider Shipfix, believes a rebound in vessel use is coming, though "these will slowly get activated, although we could see that taking a few more months." 

Perhaps the China recovery everyone has been expecting won't be as strong as initially thought. 

By Zerohedge.com

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