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Shock-Weary Global Economy Girds for Supply Jolt From Suez Mess – Yahoo Canada Finance

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(Bloomberg) — Supply Lines is a daily newsletter that tracks trade and supply chains disrupted by the pandemic. Sign up here.

Six thousand miles from the Suez Canal in the U.S. Midwest, the chief executive of a multinational maker of industrial adhesives has one eye on the clogged trade artery and another on the ways to minimize the fallout on his $2.8 billion company.

“It just adds to the ongoing stress in the supply chain” for chemicals, Jim Owens, president and CEO of St. Paul, Minnesota-based H.B. Fuller Co., told Wall Street analysts as salvage crews failed to clear the Egyptian waterway late last week. “Is it going to transform everything in a negative way? No, but it’s an issue that we’re watching very carefully.”

So is the rest of the trade world. Efforts to free the beached Ever Given are nearing a pivotal stage, relying on machines and human engineering but also hoping for a celestial pull. High tide through Monday offers perhaps the best chance yet to float a steel behemoth that’s four times heavier than the iconic Sydney Harbour Bridge.

For the global economy, hanging in the balance daily is about $10 billion in commodities, industrial inputs and consumer products on ships that ply the canal, with supply-chain fears directed mostly at Asian exporters and European importers. The broader economic costs — small thus far in relation to $18 trillion in global goods trade annually — are compounding with each day the canal remains closed.

“It is a severe blow to the already constrained supply chains that were just recovering from the Covid pandemic,” Rahul Kapoor, vice president of maritime and trade at IHS Global Insight in Singapore, told Bloomberg Television on Friday. “If it goes into weeks, it could turn into what we could call catastrophic.”

Vincent Stamer, an international trade expert at Germany’s Kiel Institute for the World Economy, said the delays thus far will cause economic damages, “but it’s too early to quantify them.”

It’s not too soon for companies to be making other plans. A few container ships and oil tankers are already avoiding the clogged shortcut between the Red Sea and the Mediterranean, and instead detouring around the Cape of Good Hope at the southern tip of Africa. That adds more than a week to the Asia-to-Europe journey and hundreds of thousands of dollars in fuel costs, but it’s a hedge against a potentially even longer delay in transiting through the Suez.

About 320 vessels were still waiting on Saturday for the passageway to reopen.

Companies from the Swedish furniture giant Ikea to Illinois-based Caterpillar Inc., the global maker of construction equipment, are among the customers of ocean freight weighing alternative sourcing plans.

In the short term, the added stress on trade will translate into higher transportation costs, tighter supplies, and more delivery delays for producers and purveyors of goods.

Even before the incident that closed the Suez, input costs in the euro area rose at the fastest pace in a decade, while measures of prices paid and charged by U.S. businesses advanced in March to fresh records as shortages of materials and disrupted supply chains sparked inflation concerns.

Over the longer run, it may force a rethinking about the dangers of too much globalization and of supply chains exposed to too much unforeseeable risk.

Overestimating those dangers might be a mistake, though, said Robert Koopman, chief economist of the World Trade Organization in Geneva. He sees the Suez situation as another test that the global economy will battle through in the weeks ahead, but will ultimately pass.

The giant, fully loaded ship is “a great photo op,” he said. “But I wouldn’t get too excited about the daily trade impact.”

Koopman said the canal blockage doesn’t mean global supply chains are at risk of disintegrating — it’s all part of doing business in today’s interconnected global economy. Whether it’s a winter cold snap in Texas that snarls production of petrochemicals, container shortages on Transpacific trade routes, or a fire at a chip-making plant in Japan — disruptions happen all the time, and companies adapt.

‘Real Risks’

“There are real risks out there,” Koopman said in an interview on Friday. “They have to be heard about and paid attention to. I wouldn’t take it as instructive about the risk of over-globalization.”

International trade in goods has been a rare bright spot over the past year, and returned recently to pre-pandemic levels. That’s the danger with the latest supply shock — it could further fatigue already strained networks of ships, ports, trains, trucks and warehouses.

According to a report from Allianz Research, each week of no traffic through the Suez Canal could dent global trade growth by 0.2 to 0.4 percentage point. Even before the Suez incident, supply-chain disruptions since the start of the year might trim 1.4 percentage points from trade growth — about $230 billion of direct impact, Allianz said.

“The problem is that the Suez Canal blockage is the straw that breaks global trade’s back,” Allianz said in the note.

Caught in the turmoil are about 6,200 container ships that carry more than 80% of merchandise trade. Dominated by about a dozen companies based in Europe and Asia, they’re already operating at full capacity and charging record-high rates for the 20- and 40-foot-long boxes they’re struggling to align with global demand.

Diverting shipments around Africa for an extended period would cut about 6% of global container capacity from the market — roughly the equivalent of removing from service 74 ultra-large vessels like the one that burrowed into the banks of the Suez, according to a note late Friday from Copenhagen-based Sea-Intelligence.

“Such an amount of capacity absorption will have a global impact and lead to severe capacity shortages,” Sea-Intelligence CEO Alan Murphy said. “It will impact all trade lanes.”

Just how badly is difficult to say, as the Port of Rotterdam can attest. As last count on Friday, 59 ships caught in the Suez snarl were bound for Europe’s biggest seaport. The vessels might take a week or two to get there, or longer.

And they may come in manageable waves or in bunches that exceed the port’s capacity. The ships’ captains might radio an arrival well in advance, or maybe not.

Ready in Rotterdam

All that fresh uncertainty means “we have a challenge ahead,” said Rotterdam spokesman Leon Willems. “The number of containers they carry will be put on trains, barges and trucks and stored in depots — but these depots are quite full at the moment.”

At Minnesota’s H.B. Fuller, which gets about half its revenue outside the U.S., Feburary’s winter storms in Texas meant the temporary closing of some facilities, though Owens said on a conference call Thursday the company should make up for the lost business “and then some.” Now, staring down the troubles in the Suez, it has a team monitoring “exactly what materials that our suppliers have that might be on those ships,” he said.

“They’re well in the mode of managing those issues and a ship stuck in the Suez is exactly what they are set up to do,” Owens said. “They’ll manage it just fine.”

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Canada to go big on budget spending as pandemic lingers, election looms

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By Julie Gordon

OTTAWA (Reuters) – Canada‘s Liberal government will deliver on its promise to spend big when it presents its first budget in two years next week amid a fast-rising third wave of COVID-19 infections and ahead of an election expected in coming months.

Finance Minister Chrystia Freeland has pledged to do “whatever it takes” to support Canadians, and in November promised up to C$100 billion ($79.8 billion) in stimulus over three years to “jump-start” an economic recovery in what is likely to be a crucial year for her party.

Prime Minister Justin Trudeau’s Liberals depend on the support of at least one opposition group to pass laws, and senior party members have said an election is likely within months as it seeks a clear majority and a free hand to legislate.

Furthermore, by September, all Canadians who want to be vaccinated will be, Trudeau has said.

Freeland has said the pandemic created a “window” of opportunity for a national childcare plan, and that will be reflected in next Monday’s budget along with spending to accelerate Canada‘s shift toward a more sustainable economy.

“It will be a green and innovative recovery plan aimed at creating jobs,” said a government source who declined to comment on specific measures. The budget will aim to help those “who have suffered most” the effects of the pandemic, the source said.

Critics say the government would be better to hold off on blockbuster spending because the economy has shown it is poised to bounce back, and to prevent the country from racking up too much debt.

“Clearly a garden-variety stimulus package is the last thing we need. This is pile-on debt,” said Don Drummond, an economist at Ontario’s Queen’s University.

“The risk is that at some point interest rates are going to go up and we’re going to be in trouble,” he said, pointing to the mid-1990s when Canada‘s debt-to-GDP ratio skyrocketed, leading to rating agency downgrades and years of austerity.

The Bank of Canada cut its benchmark interest rate to 0.25% to counter the economic fallout of the COVID-19 crisis and has said rates will not rise until labor market slack is absorbed, currently forecast for into 2023. That may change when it releases new projections on April 21.

EXPANDING ECONOMY

More than 3 million Canadians lost their jobs to the pandemic. As of March, before a third wave forced new lockdowns, only 296,000 remained unemployed because of COVID.

Despite still-high unemployment levels in hard-hit service sectors, the economy has expanded for nine straight months even as provinces have adjusted health restrictions to counter waves of infections.

“Once we see sustained reopening, we do think that the recovery will have quite a bit of momentum on its own,” said Josh Nye, a senior economist at RBC Economics.

“We think Canada‘s economy will be operating pretty close to full capacity by this time next year,” he said.

Economists surveyed by Reuters expect Freeland to project a deficit in the range of C$133 billion to C$175 billion for fiscal 2021/22, up from the C$121.2 billion ($96.7 billion)

deficit forecast in November. https://tmsnrt.rs/3wSJPcm

The deficit for fiscal 2020/21 ended in March is forecast by the government to top a historic C$381.6 billion ($304.5 billion).

Canada announced on Monday a C$5.9 billion ($4.7 billion) aid package for the country’s largest airline carrier, Air Canada, and said talks were ongoing with No. 2 carrier WestJet Airlines Ltd and others.

 

(Reporting by Julie Gordon in Ottawa; Additional reporting by Fergal Smith in Toronto; Editing by Steve Scherer and Peter Cooney)

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CANADA STOCKS – TSX ends flat at 19,228.03

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* The Toronto Stock Exchange’s TSX falls 0.00 percent to 19,228.03

* Leading the index were Corus Entertainment Inc <CJRb.TO​>, up 7.0%, Methanex Corp​, up 6.4%, and Canaccord Genuity Group Inc​, higher by 5.5%.

* Lagging shares were Denison Mines Corp​​, down 7.0%, Trillium Therapeutics Inc​, down 7.0%, and Nexgen Energy Ltd​, lower by 5.7%.

* On the TSX 93 issues rose and 128 fell as a 0.7-to-1 ratio favored decliners. There were 26 new highs and no new lows, with total volume of 183.7 million shares.

* The most heavily traded shares by volume were Toronto-dominion Bank, Nutrien Ltd and Organigram Holdings Inc.

* The TSX’s energy group fell 1.61 points, or 1.4%, while the financials sector climbed 0.67 points, or 0.2%.

* West Texas Intermediate crude futures fell 0.44%, or $0.26, to $59.34 a barrel. Brent crude  fell 0.24%, or $0.15, to $63.05 [O/R]

* The TSX is up 10.3% for the year.

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Canadian dollar outshines G10 peers, boosted by jobs surge

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar advanced against its broadly stronger U.S. counterpart on Friday as data showing the economy added far more jobs than expected in March offset lower oil prices, with the loonie also gaining for the week.

Canada added 303,100 jobs in March, triple analyst expectations, driven by the recovery across sectors hit by shutdowns in December and January to curb the new coronavirus.

“The Canadian economy keeps beating expectations,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “It seems like the economy is adapting to these closures and restrictions.”

Stronger-than-expected economic growth could pull forward the timing of the first interest rate hike by the Bank of Canada, Goshko said.

The central bank has signaled that its benchmark rate will stay at a record low of 0.25% until 2023. It is due to update its economic forecasts on April 21, when some analysts expect it to cut bond purchases.

The Canadian dollar was trading 0.3% higher at 1.2530 to the greenback, or 79.81 U.S. cents, the biggest gain among G10 currencies. For the week, it was also up 0.3%.

Still, speculators have cut their bullish bets on the Canadian dollar to the lowest since December, data from the U.S. Commodity Futures Trading Commission showed. As of April 6, net long positions had fallen to 2,690 contracts from 6,518 in the prior week.

The price of oil, one of Canada‘s major exports, was pressured by rising supplies from major producers. U.S. crude prices settled 0.5% lower at $59.32 a barrel, while the U.S. dollar gained ground against a basket of major currencies, supported by higher U.S. Treasury yields.

Canadian government bond yields also climbed and the curve steepened, with the 10-year up 4.1 basis points at 1.502%.

 

(Reporting by Fergal Smith; Editing by Andrea Ricci)

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