I don’t think I was alone this morning in having a curious sinking, disorienting feeling when I heard that President Trump had contracted COVID-19, and was self-isolating with his wife, who also tested positive. I do not wish the man good or ill personally – although a swift and painless recovery would be best – but it was the dizzying number of different possible implications of his illness on the rest of the world that spun through my mind. Everything and anything could happen I thought, especially so close to the presidential election. As I drank my coffee and smoked my cigarette, the feeling that the world had started to spin very slightly off its axis grew. To misappropriate the Chinese curse, we are starting to live in even more interesting times.
It is not as if we didn’t have enough on our plates. I don’t need to list all the abnormal things in our lives in these extraordinary times, especially when new ones keep piling up on each other, but it is worth remembering how resilient other things are, especially when their demise was confidently predicted by analysts. One such target was the globalised supply chain, and this is something that the shipping industry naturally needs to keep an eye on.
But how to measure this disruption in our world? And indeed how to predict it? And will it be a good or a bad thing as far as shipowners are concerned. Or do we just ignore it and carry on riding our own cyclical waves?
The risks to the smooth working of the global supply chains are many, from the political (sanctions, trade wars, protectionism), war (hot or cold), environmental (weather, nature, acts of God), economic (banking and financial crises), illegal (theft, terrorism, cyber-attacks) and so on. Some of these are short-lived and disrupt momentarily, others cause seismic shifts to trade patterns and economies.
For all that has happened in the world the last twenty years, there was only one event that stopped shipping in its tracks and that was the financial crisis of 2008. Of all the other momentous events, including 9/11, the invasion of Afghanistan and then Iraq, tsunamis, and wars, there was barely a ripple. Sure the freight markets went up and down, but this was due to the regular, if you can call 2003 – 2008 regular, fluctuations in supply and demand. But it was only the drying up of liquidity in the banking system, that stopped things moving around the world.
McKinsey & Company, produced a report in August this year on Risk, resilience and rebalancing in global value chains and naturally enough had some things to say. One of the most striking was the claim that companies can now expect supply chain disruptions lasting a month or longer every 3.7 years. Naturally enough they measure these disruptions in cost from the billions (common cyberattack, local military conflicts, heatwaves), to the tens of billions (man made disasters, trade disputes) to the hundreds of billions (financial crises, geophysical) to the trillions and tens of trillions (extreme terrorism, systemic cyberattacks). Strangely enough for me, they rate the cost of a pandemic more than a global military conflict, and the worst thing that can happen would be a meteor strike. But I keep forgetting they are thinking in terms of financial cost, and not all the other things that matter to humanity (including human life itself, it seems).
There follows all sorts of alarming predictions about what would happen if something bad happened, and how each industry would be affected. Happily for us, and them probably, the shipping industry isn’t seen as important as all that to feature in their report. After all, they are concentrating on industries that make stuff rather than move stuff (although aerospace is included).
One intriguing graphic shows that despite the different type of shock – whether pandemic, cyber, or trade dispute – the industries that dry bulk markets service one way or the other are at less risk of disruption than more sophisticated ones. Petroleum products are more exposed but seeing as the industry permeates all areas of daily life around the world, this is hardly surprising. But I have a nagging suspicion that these very clever people are looking at numbers and not at patterns, so miss the point about value chains, as they call them. Container lines are enjoying freight rates that could make this year better than last year, despite the grim diagnoses of earlier in the year. This suggests that value chains are more resilient, and indeed more essential to the functioning of a global economy than realised.
Earlier this year, countries were warning that valuable medical supplies would be protected, hoarded is perhaps a better word, rather than shipped to their usual destinations to customers abroad. President Trump himself has made his political career on promising – amongst other things – to bring all the jobs back that were outsourced to other places, and thereby shorten the supply chains, if not cut them completely. But business itself, the industries that make and sell the stuff, have been resistant to this, because apart from worrying about their profits, they don’t want to be told how to run their global business. There are perfectly good reasons why semi-conductors are not produced in huge numbers in the US, and very few of them are to do with the absolute cost of labour.
The environmental movement has long had globalisation and shipping in their sights too, and supported by the mostly ‘hands clean’ techies have pinned their hopes on 3D printing and other innovations to cut down on the movement of finished and semi-finished goods around the world. But carbon-footprints are deceptive: think of this when you eat your cheese salad (very big footprint) but don’t buy bananas (very small footprint) because they are not local. Thankfully you don’t have to eat local to reduce your footprint, but as I live in Greece, eating locally comes naturally to me anyway; I have no need to eat out of season because the food is excellent all year round.
In any case there have been no food shortages due to the pandemic yet, and in fact as far as consumer goods as a whole are concerned, apart from a few coronavirus related short term shortages on specific goods – toilet paper and webcams come to mind – which have varied from place to place, we live life more or less as normal.
According to Anabel González, senior fellow at the Peterson Institute think-tank and a former Costa Rica trade minister:
“Ultimately, decisions on supply chains are made according to fundamentals like production costs and access to large markets like China. Most of those factors haven’t changed.”
So shipping is safe for now. Pandemics, trade wars, economic trends and geopolitical tension have not affected global value chains, and in fact, in my view, disruption to the chains could have a beneficial effect on freight rates by stretching tonne-mile demand rather than reducing it.
But as I was finishing my coffee and thinking through the implications of President Trump’s unwelcome illness, and the logical extension of certain scenarios – purely based on the President’s past and current rhetoric – there could be a threat to the stability of the dollar, and therefore once again the banking system would come under stress. But no, this can’t possibly happen, I thought, because surely no-one would put the US and world economy at stake just to win an election, would they?