MARKET REPORT
SHORT READ PART 3
2022 JULY QUARTERLY ISSUE
Written by : Andrew Sia
We noticed that because of the Covid, the war in Ukraine, and all these have brought our world being strained. They are driving up food price, inflation and shortage along the supply chain. We have Covid since January 2020, but in Wuhan they have it already in November 2019, knowing that it is an important manufacturing hub in China, its effect must be big and continuous. But under the authoritarian, how many true figures can we believe is always very questionable.
This summer vacation we have already seen many of the trips have to be cancelled because of the lack of personnel in the traveling industry.
When I was writing this excerpt, I have Peter Gabriel and Kate Bush’s Don’t Give Up playing. It was meant for a relative who is serious ill, but the world is also seriously affected by all these adverse situations. All I can say is “Don’t Give Up our world”.
Contents:
South Korea’s Economy is Hit by Supply Chain Strain
Solar Power Project in China
Traveling in the U.S. in this Summer
Traveling in Europe
Europe Unites on Russian Oil Embargo
India’s Robust Economy But Job Market Remains Stagnant for Millions
Food Security in Asian Countries
Ukraine is Joining EU
Land Use Near the Port Area
War in Ukraine Has Brought Supply of Food Under Siege
Attitude of New Workers May Not Be The Same Again
Biden Launched the 12-Nation Trade Pact in Asia
China Faces Slowdown in Its Economy
Truck Shortage is Another Hurdle for Global Supply Chain
Germany has Another Crisis, This Time it is the Beer Bottles
EU Can’t Keep Up with Switching Over to EV
South Korea’s Economy is Hit by Supply Chain Strain – FT, June1, 2022
South Korea, Asia’s fourth-largest economy has fall for the first time in two years in all three indicators—industrial output, consumption and investment.
Its factory output shrank 3.3% in April from a month earlier, and is its biggest decline since May 2020, facility investment fell for the third consecutive months, its retail sales dropped 0.2% last month after a fall of 0.7% in March.
Its export-driven economy has faced the inflation pressure due to the war in Ukraine and supply chain disruption caused by China’s pandemic shutdowns.
Bank of Korea increased its interest rate by a quarter point to 1.75% in the fifth rise since last summer. It also downgraded its growth forecast to 2.7% from a 3% forecast made in February.
The government also approved a supplementary budget of $49.3 billion to help the small businesses hit by the pandemic.
Solar Power Project in China – Bloomberg Business Week, May 30, 2022
China is said to have ramped up its spending on solar power project to $4.3 billion in the first four months of 2022.
This is the double for what it had spent in the same period last year.
Traveling in the U.S. in this Summer – Bloomberg Business Week, May 30, 2022
We are facing the global service disruptions from the travel industry covering from airlines to rental cars, cruises, hotels, and other relating services.
This is caused by the labor shortage, inflation, supply chain, oil shortage as well as the two years of pandemic confinement.
First of all, air ticket prices are becoming sky-high. The top 11 U.S. airlines will fly 12% fewer summer flights because of the lack of pilots, increase of the jet-fuel.
We have a mismatch of air travelers with the airplane seats. Summer fares for the domestic travel are 25% higher than pre-Covid level, and 50% higher than last year.
Take for example, a Los Angeles to New York ticket is selling at an average of $569 round trip, up 69% from 2019, and New York to San Francisco is almost double, at $662. The jump is even higher for where service has been reduced: St. Louis to Decatur, Illinois, has soared 815%, to $609, and Seattle to Houston is up 54%, to $1,383.
Traveling in Europe – Bloomberg Business Week, May 30, 2022
Travel restrictions have lifted but the travel industry is under the strain of surging demand. We can see delays and cancellations at airports, constrains at ferry ports, trains connecting Britain and France for the southern European cities are congested. These are all due to the staff shortages with companies that dismissed them or lost them to other sectors during the Covid crisis. Typical example is with British Air who fired 10,000 workers at the height of the Covid instead of furloughed them.
The shortages of workers are extensive, covering from transportation of baggage to the baggage claim, airport security and cleaning posts, ground services and maintenance.
Europe Unites on Russian Oil Embargo – The Week, June 10, 2022
Before the war in Ukraine, Russia exported about 5 million barrels of oil a day, and most of them are for Europe. At this time of the sanction, Russia is sending more oil to India and Asia. Both EU and U.K. are blocking Moscow from accessing the Lloyd’s of London maritime insurance market and other European insurers to provide insurance for Russia’s export.
This time the European leaders decided to ban most imports of Russian oil. This ban covers all seaborne oil purchases that accounted for two-thirds of Europe’s purchase from Russia.
A temporary exemption for piped-in oil, which was pleaded by Hungarian prime minister, Viktor Orbán, one of Putin’s closest European allies. But Germany and Poland pledged to stop the pipeline oil imports by 2023.
This news sent the oil prices spiking to $120 per barrel since March and the world oil price is up further more in the days to come.
India’s Robust Economy But Job Market Remains Stagnant for Millions – The New York Times, June 13, 2022
India is having a good year. Exports are at record highs. Profits of public trading companies have doubled. Its vibrant middle class is in the mode of what economists call it post-pandemic “revenge spending.” India is projected to have the fastest growth of any major economy this year, but it doesn’t reflect the reality as the growth does not translate into enough jobs for the waves of educated young people who enter into the labor market each year. They have also been suffered in recent months by high inflation, especially in food prices. There is an uneven growth, the country’s upper class whose benefits often do not extend beyond the urban middle class. According to Oxfam, the pandemic has magnified the gap, putting tens of millions of Indians into extreme poverty while the Indian billionaires have surged.
The government reported later last month that the economy had expanded 8.7% in the last year to $3.3 trillion. But the lack of domestic investment, the government’s hiring slowdown. The government has to subsidize fuel, food and housing for the poorest to help the joblessness. Passing of the free grain to reach two-thirds of the country accounted to 1.3 billion people.
Inflation has been affecting the country because of the pandemic-related supply chain problems and the war in Ukraine. India has to restrict exports of grain and sugar, raising its interest rate and cutting taxes on fuel. The borrowing rate has been raised for the first time in two years, and in May it is 4.9%. The forecast of inflation would reach 6.7% over the next quarters.
Exports have been a source of income for the Indian economy, and the rupee has been depreciated to the U.S. dollar by 4% since the beginning of the year. It was supposed to boost the export, but inflation in the U.S. and the war in Europe has affected the sales for the Indian-made clothes. The industry was already working with a very thin margin, and now it is working on loss.
Food Security in Asian Countries – New York Times, June 13, 2022
This has all started as Russia’s invasion of Ukraine caused the pushup of global agricultural prices to a new height. Governments in some Asian countries are restricting the export of products they view as essential to domestic food security. The leaders do not want to be blamed for allowing staple commodities to be sold abroad at the expenses of their low-income consumers at home.
For example, it is wheat for India, cooking oil for Indonesia, chickens for Malaysia, rice for Thailand and Vietnam. Actually the governments of the two countries, Thailand and Vietnam, are considering the setup of a rice price pact to help the two countries to boost their “bargaining power.”
Global food supplies have been disrupted by not only the war in Ukraine, but also by the pandemic. The extreme weather, the rising prices of energy and fertilizers are also the cause.
Ukraine is Joining EU – FT, June 17, 2022
Leaders of the four EU, France, Germany, Italy and Romania visited Volodymyr Zelensky on June 16 in Kyiv to show their support to grant Ukraine to enter the EU. French President Emmanuel Macron assured that Europe is on Ukraine’s side to help. They also pledged to send weapons to help the war against Russia’s invasion and urged Russia to stop the blockage of Ukraine’s Black Sea ports to ease the global food crisis for the export of grain.
At the same time, the admissions of the states of the western Balkans into the EU will be considered.
Meantime, Gazprom, Russian’s state-controlled gas export, has cut the flow of the gas through the Nord Stream pipeline by 60% citing technical problems. The German deputy chancellor already urged its citizen to conserve energy. Other countries have reported the same problem, like Italy, Romania and Austria, and they have been warned that the gas supply will be cut off in coming days.
Natural gas is Russia’s weapon, and it was not too long ago that on April 13 Vladimir Putin was found quoting, “What is happening in Ukraine is a tragedy. They just don’t leave us a choice.” He is not just bad but evil and he is a war criminal already.
Land Use Near the Port Area – WSJ, June 15, 2022
Ports are found running out of space to store containers. In the past, loaded containers used to stay at the port for four to five days before moving on, and now it takes eight to ten days. Because of this it is taking up space and make the next vessels the greater difficulty to unload their containers.
Logistic companies and port operators are rushing over to lease the vacant land close to the container terminals and this has been driving up the cost. Already the e-commerce companies are turning warehouses into their order fulfillment centers and now the empty lots are used to stack up the containers before putting them on the rail or hookup with trucks to deal with the surging demand.
Take Savannah’s port for instance, it has leased six lots in Georgia, Alabama and North Carolina and turn them into container storage facilities.
With the lack of the empty container boxes, the shortage of truck drivers and port operators, all these have added the difficulties in operating the port activities.
War in Ukraine Has Brought Supply of Food Under Siege – FT, June 8, 2022
The war has disrupted the supply of fertilizers which are needed for the wide range of crops. Potash is one, used with other fertilizers on wheat, corn and soybean crops. It is said to increase yield by a third and more. Its production is concentrated in a few countries, Russia and Belarus, for 40% and slightly more can be coming from Canada.
Its price has soared to $1,200 per ton from what was at $500 before. The higher fertilizer costs have hurt the farmers worldwide.
Higher food prices would cause political unstable countries turning into turmoil. The UN has already said that the number of people suffering severe food insecurity has doubled in the past two years to 276 million today. If this situation will continue, the total can only increase.
Attitude of New Workers May Not Be The Same Again – WSJ, May 6, 2022
Manufacturers, restaurants, airlines and cleaning companies are among the employers seeing a surge of job seekers but they don’t turn up to work after the interviews. This is known as the “ghosting”.
Take for instance, the Southwest Airlines Co. said that 15% to 20% of the new hires don’t turn up for work in their first day. Allied Universal, a security and facility provider, said that roughly 15% of the new hires never report to work.
Many companies have simplified their hiring processes with improved technology allowing job applicants to interview online without speaking with the HR department. Perhaps the job market is the strongest in the last fifty years and unemployment rate fell to 3.6% in March. Job openings and the workers quitting the jobs have both reached the highest level on record.
This can be the time for the employers to think about improving the work environment and also the job training to create the sense of belongingness for the existing staff and also the newly hires. Using a higher pay but a more demanding working attitude to withhold the staff to grow with the company would probably the way to go. Allowing them to see the chance of getting promoted is important.
Biden Launched the 12-Nation Trade Pact in Asia – FT, May 24, 2022
A trade initiative with 12 Indo-Pacific countries has been launched by Biden to boost economic engagement in the region and use for the U.S. to counter-balance a more assertive China.
The Indo-Pacific Economic Framework (IPEF) was unveiled on Biden’s first trip to Asia as the U.S. president after he met with the Japan Prime Minister Fumio Kishida. The twelve countries, Japan, Australia, New Zealand, South Korea, Singapore, Malaysia, Indonesia, Vietnam, the Philippines, Thailand and Brunei will join the IPEF and collectively they represent 40% of the global economy.
China is part of the 15-member Regional Comprehensive Economic Partnership (RCEP) that also included Japan and South Korea, together with the ten ASEAN members.
Earlier on, there was the Trans-Pacific Partnership (TPP) for the 11-nation initiated by the U.S. but when Donald Trump entered the White House, the very next day he left the pact.
This time the IPEF contains the four pillars: trade; supply chain; clean energy and infrastructure and tax and anti-corruption. Katherine Tai, the U.S. trade representative, said that the TPP was lacked of the support in Congress, and was a traditional trade pact to lower tariffs to boost market access. But IPEF is more for the modern economy and include an important component on digital trade. It is ready for the challenges in the 21st century global economy.
The IPEF members would have to decide how many of the four-pillars they want to join and the agreement will take 12 to 18 months to finalize the agreements.
This time it won’t be derailed as it will get the consent from the U.S. Congress.
China Faces Slowdown in Its Economy – WSJ, May 2, 2022
China’s slowdown is due to its zero-tolerance approach to Covid-19.
Already the purchasing manager indexes released by the Chinese government showed contractions in factory and service-sector activity for a second straight month in April. This was also the lowest level since the pandemic started in early 2020.
Its cement production in April was less than 40% of its full capacity. The excavator sales within China was down 60% compared with the previous year.
Its export was affected by the war in Ukraine and the push up of cost for businesses and the diminishing demands for the exports.
Earlier on, its regulatory crackdowns have hit the high-growth sectors such as technology and education. The real estate went into a fall last year as developers have reported heavy debts and home sales slumped.
Commodity export count on China’s demand, and iron ore and other metals have seen the demand vanishing.
Already those technology giants have laid off employees which was partly due to the Beijing’s crackdown to ensure that they would follow the government’s dictate on their way of running the business. This year, more than 10 million students would graduate and there won’t be job vacancies for them.
About a third of China’s 290 million migrant workers haven’t returned to their cities for employment since the Lunar New Year in February amid the Covid restrictions. The number of those hired in the small- and medium-size companies has shrunk by 30%.
Chinese stock suffered their worst selloff in more than two years, and China’s economy is in its worst shape in the past 30 years.
In April, the IMF cut China’s full-year growth to 4.4% from 4.8% earlier on. Barclays projected on April 29 that the GDP growth can fall to below 4%, although earlier on China was predicting 5.5% growth.
Unless Beijing can modify its pandemic strategy, there can be another dip in its output in the third-quarter. China has a lot of thinking to do now to revive its economy.
Truck Shortage is Another Hurdle for Global Supply Chain – FT, May 2, 2022
There is a new challenge this time for the haulage companies, this time it is the shortage of trucks. Last year we have saw the shortage of truck drivers, but with more lucrative wages, more drivers are back on the road.
Truck deliveries are still below 20% in comparison to the time during the pre-pandemic period. There are the shortage of chip supply, and also the spare parts for the trucks that add the uncertainty of the supply.
The shortage of trailers is also a problem that is yet to solve.
Germany has Another Crisis, This Time it is the Beer Bottles – New York Times, June 10, 2022
A Germany brewery near the Polish border found that his natural gas jump a startling 400%, the electricity bill increased by 300%, and he is paying more for barley. But there is the most severe shortage, which is the beer bottles and the prices have increased to the level that the customers would have to pay for €8 as the deposit to ensure the return of the bottles.
Germany has roughly 1,500 breweries with up to four billion returnable glass bottles in circulation. It also means about 48 bottles for each German in the country.
The returnable-bottle system is not only good for recycling, but also good for the climate-friendly practice. But bringing back the empty bottles to the store can be a hassle and they tend to stack them up until they are running out of space.
Now with the hot weather coming up and backyard barbecues and festivals are driving up the beer sales, the national brewers’ association is urging the people to return the empty bottles as 80% of the sales of the beer are in bottles.
The war in Ukraine has exacerbated the problem as it was the important supplier for glass bottles, and also the sanctions of Russia and Belarus have ceased the supply. Now the Germans have turned to France, and Czech Republic for supply. They are more expensive and partly because of the glassmaking which requires very high temperature.
Other costs have also increased, for instance, the cost of the wooden pallet for stacking the crates of the beer, the logistic cost because of the gasoline and the truck drivers, all these have inflated the price of the beer for a country where there are a lot of beer lovers.
Germany ranked fifth in the world for per-capita beer consumption in 2020. The U.S. ranked seventeenth.
EU Can’t Keep Up with Switching Over to EV – WSJ, June 10, 2022
The German Association of the Automotive Industry is calling for more time to switch to electric vehicle from cars running on conventional engines. Earlier on, it was agreed that by 2035 that a ban of new cars in the conventional engines would be taking effect.
There are millions of jobs in the European Union that are depending on the auto industry. If the moving is too fast, it can hurt also the automotive-parts suppliers. There is also the lack of charging infrastructure in the large part of Europe.
Like a lot of other industries, the auto industry is under the stress of the supply chain disruption, the continuous shortage of semiconductors, rising cost of fuel, the scarcity of parts and the unclear situation that has been brought by the war in Ukraine.
All these have created an effect in the new-car sales in the first four months of the year for instance, and the sales have dropped 14.4% from the last year’s figure to 2.9 million cars. Sales of new electricity-chargeable vehicles—EV or hybrids, represented 19% of the new-car sales. The market share of diesel and gasoline-powered cars are only accounted for 52.8% of the new-car sales.
EU is still pursuing for the reduction of carbon emissions, but in the midst of all these challenges, I don’t think that it is too optimistic.