Ships are skipping China and causing turmoil for trade

Discoms’ dues to gencos rise nearly 50%

Power producers’ total outstanding dues owed by discoms jumped nearly 50 per cent to Rs 88,177 crore in Dec. 2019 over Dec. 18, reflecting the stress in the sector. Distribution companies owed Rs 59,015 crore to gencos in Dec. 2018, according to portal Praapti. The total overdue amount, not cleared even after the 60-day grace period, stood at Rs 78,174 crore in Dec. 2019 against Rs 44,464 crore in Dec. 2018.

February 2020 will come to be remembered as a period of historic disruption to physical supply chains the world over, as the coronavirus wrecks trade.

Dozens of export sailings to ship China-made goods to consumers from the US to Europe—think handbags, flat-screen TVs, and plastic toys—have been canned since the coronavirus crisis escalated last month. Those non-shipments are part of a much bigger picture in which every aspect of global shipping—from oil and gas to dry-bulk commodities— has been upended.

The unprecedented gyrations caused by the virus matter because 90 per cent of all trade moves by sea and China has grown into the maritime industry’s main source of cargoes. The disruptions have left toy makers like Hasbro Inc and fashion houses like the owner of Michael Kors, Versace and Jimmy Choo struggling with their supply chains. Vessels are idling. And exporters to China face diversions as clients there use force majeure clauses in their contracts to walk away from commitments to buy cargoes.

“All the signs are that there has been a major dislocation in global supply chains and commodity trade as well,” said Caroline Bain, chief commodities economist at Capital Economics. For some products “it’s only going to get worse in February data.”

Even at a most-basic level, shippers are struggling to sort out the necessary

paperwork required for shipments involving China, snarling some trades in an industry where many transactions need physical documentation to accompany consignments.

Container vessels that routinely move goods worth hundreds of millions of dollars in single shipments are at the sharp end of the turmoil. The number of blank sailings -where ships don’t load at a planned location -- has jumped since the outbreak began. AP Moller-Maersk, the world’s largest shipper, has listed at least 27 blank sailings since January 31 on its website.

Almost 600,000 20-foot boxes are currently out of action as a result of the virus according to Alan Murphy, CEO of container shipping analysis company Sea Intelligence, up from about half that amount just under a week earlier. Though rates can vary, using an estimate of $1,000 per container, that means shippers had to stomach a hit of $600 million this week. Ships may either be slowed down in the hope that demand improves in future weeks, or idled until things turn around, Murphy said.

Toy maker Hasbro said in earnings this week that the virus is disrupting its commercial operations in China -- from where it had already been seeking to diversify its supply chain as a result of the trade war. Capri Holdings Ltd. -which owns Michael Kors, among other brands -- said its outlook may be impacted by the outbreak as it wrestles with potential supply chain issues.

There’s a knock-on effect for exporters in other nations too. Containers are typically used in US and other regions to carry those countries’ exports. The lack of liners hauling containers from Asia, may soon mean countries like the US face a shortage. It’s already getting more difficult to get empty ones in Canada, said Greg Northey, a spokesman for industry group Pulse Canada.

The issues afflicting shippers of finished goods are also being felt in energy and commodity markets.

Traders of oil from West Africa, Latin America and the North Sea initially reported weaker demand from China, while some buyers of Saudi Arabia’s barrels have asked to get less than they would normally take for March.

—-Bloomberg