Hard right, hot coffee, scarce cycles

ABERDEEN, SCOTLAND – The beached whale ain’t budging. The Ever Given remains stubbornly lodged in the middle of the Suez Canal. And the traffic jam is now close to some 240 vessels long…

And that’s just in the jam itself. According to Bloomberg, there are 300 vessels globally that are either stuck in the Suez Canal, waiting to transit the waterway or signalling it as their next destination.

There are the bulk carriers hauling commodities from agricultural crops to cement… tanker vessels carrying oil, fuel, chemicals, and water… a few ships carrying livestock… and the general cargo vessels stacked high with multicoloured shipping containers like the Ever Given itself.

The compounding effect this is having as multiple nodes across supply chains reassess routes is hard to fully comprehend. Rerouting around the Cape of Good Hope of course takes more time (one of the reason’s the canal constructed in the first place), which in turn will cause more delays. When the ships do finally make it to their destinations, many won’t be able to reload and make their scheduled return journey on time, leading to cancelled voyages.

Going around the Cape also requires more fuel – more must be bought, and planned for. Ships which are planning to still take the Suez route, but want to have enough fuel to take a detour if required, will have to buy more than normal. Changes to port rotations, crew rotations… these will all have knock-on effects. With every hour that passes, the simple act of taking a hard right in a narrow lane is having exponentially larger consequences…

An interesting consequence of this traffic jam is taking place in the coffee market. Take a look at this, from Bloomberg:

Coffee roasters in [Europe] had already been struggling to get coffee from Vietnam, the world’s largest robusta producer, due to a shortage of shipping containers. Just when the availability of boxes started improving, the canal blockage brought another headache. All of the beans Europe imports from East Africa and Asia flow through the Suez…

Unlike roasters in the U.S., Europe’s coffee makers can’t as easily use supplies of robusta coffee from Brazil due to the taste of their products. As a result, some roasters in the continent recently turned to supplies from East Africa to bridge the shortfall of robusta beans from Vietnam, buying up supplies from places like Uganda or the milder-tasting arabica beans from the region.

But those beans also travel via the Suez. Traders who have them stored in European warehouses are charging a hefty premium in the physical market. At the peak of the container squeeze, traders were demanding $450 a metric ton above the exchange price for Vietnamese coffee held in Europe, three times the normal rate.

“Inventory in Europe is very tight and I expect the spot market in will be on fire,” JL Coffee Consulting’s Luhmann said. “Inventory in Vietnam is comfortable, but what’s the value of that if you can’t get it to Europe?”

For a global trading nation like the UK, we are very sensitive to such shocks to world trade – and I think we’re going to see a lot more of this kind of disruption in the years to come. Not all of it will be accidental either, as Cold War II escalates. Thankfully we have the Royal Navy, which as a blue-water navy can run military operations anywhere on the high seas and protect UK shipping lanes as required.

I asked you earlier this week if you’ve noticed any materials or products becoming scarce due to the supply chain disruptions brought about by lockdowns. I got some interesting responses:

Try ordering a bicycle, particularly e-bikes. There used to be sales promotions to clear existing models for the latest model. Now you have to wait months to get a bicycle. 

In UK and Ireland many ebike models ordered now won’t be delivered until 2022. I suspect these supply issues will start to feed into inflation over the next couple of years.

It’s not just the UK and Ireland that are having a bike shortage either…

You’ll probably have noticed that the bicycle industry went nuts during lockdown. I bought an electric mountain bike last June, and I could count on my fingers all the electric mountain bikes available for sale in this region of the French Alps last summer. The owner of Berkshire Cycles said in an interview he was used to receiving 300 bikes a week from his suppliers, and with customers queuing down the street from before opening time, he was receiving about 3 bikes a week.

I went to a Decathlon store in the UK last August and the bike section was completely empty apart from the accessories rack, and one solitary child’s bike. A combination of surging demand during lockdown, and interrupted supply chains due to shutdowns of bike and parts manufacturers led to a perfect storm. Same for lots of outdoor goods actually – snowshoes, splitboards and touring equipment have all been in short supply in the Alps this winter. I’ll tell you one thing about France – they love to exercise, you don’t see many fat people about!

I wonder how much of the demand for bikes is being driven by supply chain disruptions, and how much is from the increased demand for bikes. After all, plenty of people have turned to cycling as a health kick, and the few firms that have aggressively hiring people in this environment have been the likes of Deliveroo, growing their legions of delivery riders to cater to all the lockdown demand.

Ain’t just bikes that are running short though:

All building materials are in short supply in Ireland. Construction timber has almost doubled in price since this time last year – if you can get it at all – and there is apparently a Europe-wide scarcity of metal sheet cladding (the type used for industrial or agricultural buildings).

Bikes and coffee are one thing – building materials is another. A lot of the narrative on the rise in timber prices has been the rise in DIY, but I wonder if that’s all there is to it. We’ll take another look at this next week.

Wishing you a good weekend,

Boaz Shoshan
Editor, Capital & Conflict

PS The Royal Navy ain’t the only ace up the UK’s sleeve when it comes to global trade instability – there’s this too…

Category: Geopolitics

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