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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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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
