Aurelia Butler

Hello from Germany, where supply chain snags have been hampering growth. The main reason being the impact that the semiconductor shortage is having on the country’s carmakers. The closely watched purchasing managers’ index for manufacturing is now at its lowest level for 10 months. Input costs are also rising fast on the back of supply delays and energy shortages, as well as higher energy and wage bills. Today’s main piece focuses on a more upbeat theme for manufacturers in Germany and elsewhere. The surge in global shipping costs may have reached its peak, with prices falling sharply since early October. Are shipping costs about to stay lower for good? Back in early October, something popped up in our inbox which struck us as potentially big news. It was based on some data from a freight-forwarding company called Shifl, which showed container shipping rates from China to Los Angeles dropped by $9,000, or a whopping 51.4 per cent, between September and October. (For those interested, we marked this at the time with a short post on FT Alphaville.)Unless you’ve been sleeping under a rock for the past 18 months, you’ll be aware that the cost of shipping has surged dramatically. On the China to Los Angeles route, quotes of $20,000 to take a 40ft container across the Pacific were not out of the ordinary during the late summer period. That compares with rates as low as $1,500 pre-pandemic. The fall recorded by Shifl in early October struck us as remarkable, but we were not sure then whether it marked the end of the trend of ultra-high shipping costs. We thought it may have been a blip, something that owed more to power outages and Covid-19 outbreaks in Chinese factories than anything more long term. Six weeks ago, there was also not much evidence from other shipping cost indices that prices had plunged, or were about to. That’s no longer the case. Indices of short-term rates compiled by logistics data company Xeneta are also displaying a fall in prices across leading trade routes. Albeit not as dramatically as those recorded by Shifl. The Freightos Baltic index, which charts global container rates, is also ticking down. These falls in prices go beyond container shipping too. The Baltic Dry index, which measures the cost of transporting bulk cargo such as iron ore or grains, has also fallen sharply since early October. So are we about to see prices dip towards the sort of levels seen before the pandemic? That largely depends on what happens over the next fortnight. Much of the decline in the Baltic Dry index was down to more capacity on the largest vessels, known as Capesize ships. There were also fewer cargoes going to China, and less congestion through the Chinese ports. But Semi Assimakopoulou, an analyst at The Signal Group, which uses mapping data to assess shipping price movements, told us some of these trends might be about to go into reverse. There are signs that vessel supply is now becoming more constrained on the Capesize ships. And demand remains significantly higher than it was at this time last year.“Typically around the end of November and the beginning of December, there is a spike in demand. And we’ve seen a drop in supply, so I am confident that the price of transporting dry bulk cargoes will go up,” Assimakopoulou told us. “There is potential for them to go up to where they were in October given the time of year we’re now in. And shipping is a very volatile business. We will most probably see this happening before the 10th of December.”We await with bated breath to see what will happen to container shipping prices. The latest data from Shifl, sent to us earlier today, shows that the cost of sending a 40ft container from China to LA actually ticked up slightly over recent weeks, from a nadir of $8,300 to $10,000. There has been, and there remains, a great deal of uncertainty in the global economy. Few expected shipping costs to surge as high as they have. Indeed, avid readers may recall our forecast, made back in January, that prices were unlikely to surge much higher than they had done over the course of the latter months of 2020. All we can do is hold our hands to our reddened cheeks and say: “Oops!” That call has taught us to avoid being too brave, or foolhardy, in predicting what comes next. If you, dear reader, are braver, then we’d very much welcome your thoughts. Trade linksHelen Thomas has a great column explaining why, as far as the City of London is concerned, Brexit is a slow bleed. France and Italy are cementing their friendship with a treaty. How nice. This morning’s lead story on the excellent Europe Express is about the EU’s attempt to save its vaccine certificate, a project that’s been mired by member states going their own way. Claire Jones More

OTTAWA (Reuters) – Canadian Prime Minister Justin Trudeau will add rebuilding from British Columbia’s devastating floods to his list of priorities when he outlines plans on Tuesday for the new parliamentary session, which include firmer measures to fight climate change.Trudeau’s Liberals were re-elected on Sept. 20, albeit with a second minority government that will need opposition support to pass legislation. On Tuesday afternoon, he kicks off work in the House of Commons with a speech that Canada’s governor general, who represents its head of state, Queen Elizabeth, will deliver on the prime minister’s behalf.”We will be there to help rebuild, along with the province, in the weeks and months to come” will be the message to British Columbia in the so-called throne speech, said a government source who was not authorized to speak on the record.”The situation in B.C. is an immediate priority, but it’s not the first and won’t be the last climate-change-related disaster, and so we need to accelerate climate action,” the official added.Last week’s floods forced the closure of the Trans Mountain oil pipeline and cut two critical east-west rail lines, leaving commodities exporters scrambling to divert shipments from Vancouver. The flooding underscored the vulnerability of Canada’s supply chains to climate change, and looked set to be the costliest natural disaster to hit Canada.”With supply chains already strained, this disaster couldn’t have come at a worse time,” Jimmy Jean, chief economist at Desjardins Group, said in a note.Economists have signaled they are lowering their growth forecasts for November and the fourth quarter because of the floods in Canada’s westernmost provinceMuch of what Trudeau will describe as his legislative priorities were part of his campaign platform. They include a plan for more affordable housing, ensuring families C$10-a-day childcare, fighting COVID-19, committing billions to seniors homes, and new climate linked investments. New Democratic Party leader Jagmeet Singh said on Monday he would be open to supporting the government on post-flood reconstruction and climate change, and perhaps other legislation.”If there’s something that’s going to help people, we are happy to do that,” Singh, whose left-leaning party holds the fourth highest number of seats, told reporters on Monday. More

The German economy, Europe’s largest, has boomed on the back of globalisation over the past decade. But pandemic-related disruptions in the worldwide network of supply chains that used to turbo-charge its growth engine are now proving a critical weakness.Shortages of semiconductors and other industrial components are threatening to bring Germany’s economic recovery to a standstill, forcing executives to re-think supply lines and try to reduce reliance on a handful of Asian and U.S. suppliers.The survey by the DIHK Chambers of Industry and Commerce among 3,200 of its members doing business abroad showed that the supply chain woes in world trade have become worse: More than half of the companies reported problems in their supply chains or logistics, up 14% compared to the spring.”Rising global demand is currently coupled with insufficient production capacities and transport problems,” DIHK trade expert Volker Treier said.The reasons for the disruptions are manifold, ranging from a lack of containers and freight capacities on ships as well as production stoppages caused by COVID restrictions as well as missing components.The supply chain disruptions can also be traced back to serious trade policy distortions by other governments, such as regulations forcing German companies to produce certain intermediate goods only locally, Treier said.In view of those problems, 54% of companies are planning to adapt supply chains or have already done so, the survey showed.Of those companies, 72% are looking for new or additional suppliers, 32% are planning to shorten or change delivery routes and 15% are determined to relocate their own production.Important criteria when looking for new production sites are the availability of skilled workers (54%), the geographical location of the production site (43%) and general economic conditions such as taxes, customs duties or sanctions (43%).The situation is particularly grave for German companies doing business in Britain: A total of 77% of those firms said they had to adapt their supply chains.Of those companies, 93% said they are seeing themselves being forced to change delivery routes and 39% said they are planning to relocate production, mainly as a result of new trade barriers following Brexit. More

TAIPEI (Reuters) – Taiwan and the United States discussed chip shortages and how to respond to China’s economic “coercion” during the second session of an economic dialogue launched last year, Taiwan Economy Minister Wang Mei-hua said on Tuesday.The talks came a week after a virtual meeting between U.S. President Joe Biden and Chinese leader Xi Jinping. After that meeting, Xi warned that supporters in the United States of Taiwanese independence were “playing with fire”.China claims fiercely democratic Taiwan as its own and has not ruled out the use of force to ensure eventual unification.Speaking to reporters in Taipei after five hours of online talks, led on the U.S. side by Under Secretary of State for economic growth, energy and the environment, Jose Fernandez, Wang said they discussed supply chain collaboration, including on semiconductors. “The semiconductor portion included the present short-term supply chain bottleneck problem. Even more important is the future long-term collaboration,” she added.Chip powerhouse Taiwan has said it is doing all it can resolve the global shortage of semiconductors, and has been especially keen to show the United States, its most important international backer, that it takes the problem seriously.How to respond to China’s economic “coercion” also came up, Wang said, focused on Lithuania which has faced pressure from Beijing for allowing Taiwan to open a de facto embassy in its capital Vilnius.”We all share the belief that all countries, all economies, should not be subject to this kind of external coercion,” she added.China downgraded ties with Lithuania on Sunday over the spat. Taiwan hopes the dialogue may lead eventually to a free-trade agreement with the United States and hailed last year’s inaugural meeting as a step forward.It was part of increased U.S. engagement with Taipei under former President Donald Trump that the Biden administration has continued, to the anger of Beijing. The two sides held long-delayed talks on a Trade and Investment Framework Agreement virtually in July, and Taiwan said it hoped it would be possible to sign an FTA one day. More

Electronics retailer AO World has downgraded its guidance for the full year, pushing its shares down 25 per cent, as the cost of delivery driver shortages and supply chain disruption hit trading. The FTSE 250-listed digital white goods retailer expects full-year group revenue to be “flat” or fall as much as 5 per cent year on year, with group adjusted earnings before interest, taxes, depreciation and amortisation in the range of £10m to £20m.AO shares shed a quarter of their value in early trading on Tuesday before paring losses to sit 13.6 per cent lower at lunchtime in London, taking their decline for the year to 74 per cent.The online retailer has recruited roughly 500 new drivers to combat shortages, but said in a statement on Tuesday that trading was “significantly softer than we anticipated only eight weeks ago”. “We have fixed the capacity problem, but the cost of doing that obviously now continues,” said chief executive John Roberts. “The annualised running cost of doing that is going to be about another £15m.”Product shortages, shipping costs, rising prices and inflation have generated “challenging uncertainties”.“There is material product inflation of 10 to 12 per cent that has come through the market over the last six to 12 months,” said Roberts. “There is definitely inflationary pressure being felt on household budgets . . . one can only assume it’s negative, but to what extent is unclear.” Last month the retailer said second-half growth would be similar to the first, with adjusted earnings before interest, taxes, depreciation and amortisation for the full year anticipated to be in the £35m to £50m range — some 20 per cent below consensus expectations. “At the start of our financial year in April, we planned for continued revenue growth and built up our cost base accordingly,” the company said. “However, since then, growth in the UK has been impacted by the nationwide shortage of delivery drivers and the ongoing disruption in the global supply chain, and the German online market has seen significantly increased competition.” Group revenue in the six months to September rose 6 per cent from the same period last year to £760m. It was up 67 per cent compared with the same pre-pandemic period two years ago.“Our results over this period have inevitably been affected by the constraints and uncertainty seen across our industry,” said Roberts.AO said the long-term trends were positive, however. “Over 50 per cent of the market in the UK is now transacted online,” Roberts said. “The direction of travel is for that to continue growing.” More

“The risks to inflation are skewed to the upside,” she said. “It’s plausible to assume that inflation is going to drop below our target of 2% in the medium term.”However, there could be structural shifts pointing in the other direction,” Schnabel, the head of the ECB’s market operations, said. “I don’t think we can truly tell, on the basis of today’s data, what is actually going to happen.”Schnabel added that plans to end pandemic emergency bond buys remain valid, despite a new wave of COVID-19. More

The railway will connect Ruijin city of Jiangxi province and Meizhou city of Guangdong province, the Meizhou Daily reported.($1 = 6.3855 Chinese yuan) More

The announcement kicks off an approval process in the U.S. Senate that could wrap up as early as next month or stretch into early 2022. Powell’s current term as chair expires in early February, and the Fed Board of Governors seat held by Richard Clarida, who currently holds the vice chair post to which Brainard has been nominated, expires at the end of January.In the meantime, the Fed continues about its business, with its final policy meeting of the year in three weeks. Here’s what’s ahead for the leadership process and the Fed’s agenda:FIRST STOP: SENATE BANKING COMMITTEEThe nominations of Powell and Brainard, whose stints as Fed board members date to 2012 and 2014, respectively, must be formally submitted to the Senate, which will refer them to the Senate Banking Committee, chaired by Democrat Sherrod Brown.The committee, split evenly between Democrats and Republicans, will schedule confirmation hearings and then vote to either report the nominees favorably, unfavorably or with no recommendation to the full Senate.Fed officials including Powell and Brainard enter a “blackout period” starting at the end of next week ahead of their December 14-15 policy meeting, making it unlikely their confirmation hearing or committee vote could be held before then.ON TO THE FULL SENATERegardless of the committee’s recommendation, the full 100-member chamber, also equally divided, then has the final say, with Vice President Kamala Harris designated as the tie-breaking vote should it come to that. Both have been through this process before for their current posts. While neither received unanimous support in their previous nominations, both were ultimately approved. Powell, a Republican who has focused extensively on his relations with Congress since becoming chair in 2018, is seen getting majority support from both parties. Brainard, a Democrat, may find less bi-partisan backing, but at least one Republican – Susan Collins of Maine – told Reuters she would back both.Broker-dealer BTIG in a note on Monday said it expects the process to move quickly in December, starting promptly after the Fed’s next meeting.”Our base case is that they will be cleared by the full Senate this year,” BTIG analyst Isaac Boltansky said.THREE MORE SPOTSBiden still has three vacancies to fill at the Fed’s seven-member Board of Governors, including the vice chair for supervision role recently vacated by Randal Quarles, who leaves the Fed at the end of the year.These openings offer Biden an opportunity to put a lasting imprint on the central bank, and most analysts expect him to tap progressives and individuals of diverse backgrounds, especially for the bank-oversight role.Progressives like Senator Elizabeth Warren of Massachusetts, upset with Biden’s choice of Powell, have ramped up calls for a tougher Wall Street cop in the supervision seat.Biden said in his statement nominating Powell and Brainard that he would announce his choices for these roles in early December. Each will go through the same process detailed above. Rates market responds to Powell staying as Fed chair, https://graphics.reuters.com/USA-FED/movanlrwbpa/chart.png A ‘DIFFICULT DANCE’As the Powell and Brainard nominations weave their way through Capitol Hill, business at the Fed continues, with the year’s final policy meeting in just three weeks’ time and growing expectations for more decisive action to address annual inflation running at around twice the bank’s 2%-a-year target.Earlier this month, officials took the first step toward putting policy on a more normal track after roughly a year-and-a-half in an emergency footing designed to cushion the economy from the broadside delivered by the pandemic.A number of Fed officials argue they need to accelerate that end-game process to bring inflation to heel – starting with a quicker end to their bond purchases and an earlier start to rate hikes.Just how far Powell and Brainard are leaning in that direction is unclear, but both went out of their way on Monday as they stood alongside Biden to assure they are determined not to allow inflation to upend the ongoing economic recovery and hurt American families.Mark Zandi, chief economist for Moody’s (NYSE:MCO) Analytics, sees a challenging few months ahead for the Fed, with almost as much uncertainty about the pandemic – and the risks that poses to the recovery – as about inflation.”They have to raise rates quickly enough and take their foot off the accelerator fast enough that the economy doesn’t experience runaway asset markets or inflation that’s going to be tough to get back into something they feel comfortable with,” Zandi said. “It’s a very difficult dance they’re going to have to do.” More