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Even Suez can’t hold back red-hot global trade

A resurgent global economy, led by the US, will likely drive world trade higher this year, despite a series of acute disruptions to already strained supply chains.

A man waving the Egyptian flag after Panama-flagged MV 'Ever Given' container ship was fully dislodged from the banks of the Suez. Picture: AFP
A man waving the Egyptian flag after Panama-flagged MV 'Ever Given' container ship was fully dislodged from the banks of the Suez. Picture: AFP
Dow Jones

A resurgent global economy, led by the U.S., will likely drive world trade higher this year, despite a series of acute disruptions to already strained supply chains, including last week’s blockage of the Suez Canal.

Surveys of manufacturers around the world that were released Thursday vividly depicted the current pressures on the globe-spanning supply chains that deliver to consumers everything from computers to lawn chairs.

In those surveys, factories recorded a near-universal complaint: Securing enough raw materials and other inputs to meet rising demand from customers is becoming increasingly difficult and expensive. Some manufacturers are reporting record high export orders.

But there were few signs the pickup in factory output that began in mid-2020 and has been driven by trade is coming to an end.

Pent-up demand around the world after a year of Covid-19 restrictions has been so high that shippers are running low on containers in which to ship goods by sea. But despite those shortages, the World Trade Organization expects flows of goods across borders to increase by 8% this year, more than reversing the 5.3% drop seen in 2020 as the pandemic hit factory output and shipping.

The recent blockage of the Suez Canal by the Ever Given, a giant cargo ship, has delayed scores of ships that rely on the canal to ferry goods from Asia to Europe and the U.S. Delays to supplies are likely to be felt by retailers and manufacturers there over coming weeks.

“The fact that the Ever Given was able to cause so much disruption is a sign that global merchandise trade is relatively robust, and that global supply chains have held up through the pandemic,” said Ngozi Okonjo-Iweala, the WTO’s director general, at a news conference unveiling its new forecasts.

The Geneva-based trade regulator estimates that just 0.38% of annual global trade flows were delayed by the Ever Given, which was freed Monday after the six days it spent jammed between the two banks of the Suez Canal.

“Every day there are domestic and international supply chain shocks of varying degree, from winter storms in Texas, to hurricanes and plant fires,” said Robert Koopman, the WTO’s chief economist. “This one was visible and had clear knock-on effects, but frankly it’s likely to be absorbed in the normal noise in the data.” While goods are likely to reach their final destinations with some delay, as long as they continue to get there global economic output is likely to be little affected. However, the Suez blockage will add to the rising costs faced by manufacturers world-wide.

Purchasing managers responding to data firm IHS Markit’s monthly questioning reported strong rises in the prices they have had to pay for their supplies, even where output is relatively subdued. Taiwan, South Korea and Vietnam have been big beneficiaries of the surge in U.S. demand for consumer goods, and factories there are reporting lengthening waits for the supplies they need as well as rising prices. But so too are factories in Thailand and Malaysia, which are still struggling to recover from the pandemic.

Before the Suez Canal accident, Europe’s factories were booming, according to the IHS Markit surveys, with Germany’s manufacturers during March reporting the fastest increase in activity in the 25-year history of the monthly poll. That was partly driven by export orders, which reached what IHS Markit said were unprecedented levels.

The survey found that 76% of manufacturers had seen average supplier delivery times lengthen in March, surpassing the previous record high, which was the 64% recorded in February. They also reported the second-fastest monthly rise in input prices.

“The Suez Canal blockage could not have come at a worse time,” said Phil Smith, an economist at IHS Markit.

But while that obstacle to the speedy movement of goods has been removed, other problems remain. Container ships arriving at southern Californian ports have to wait for as long as 12 days to unload their cargoes of washing machines, medical equipment, consumer electronics and other goods.

Those delays are unlikely to ease quickly, with U.S. demand set to receive a further boost from the Biden administration’s $1.9 trillion support package.

According to the WTO, that will ensure that North American demand for imports -- most of which comes from the U.S. -- will rise by 11.4% this year, a much faster increase than the 8% expected for Europe. And it expects Asia to meet much of that increased demand, with its exports set to rise by 8.4%, although Europe’s overseas sales will almost keep up with a rise of 8.3%.

The Wall Street Journal

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Original URL: https://www.theaustralian.com.au/business/the-wall-street-journal/even-suez-cant-hold-back-redhot-global-trade/news-story/1d714f6548b018f481f2db2ce044c97b