The Finatical
Week of October 19th, 2021 - A Troubled Energy Market and Shipping Costs Decline
FinaticTrends - 2 Financial Trends
1 - A Troubled Energy Market
Although much has been written about the shortage of electricity in China, less attention has been paid to the growing shortage in India. There, as in China, a shortage of coal has led to a significant decline in domestic coal reserves, thereby threatening to undermine the stability of electricity generation, about 66% of which depends on coal. The coal shortage in India comes about at a time when the economy is rapidly rebounding after a period of weak growth during the worst of the pandemic. Demand for electricity is rising faster than the ability of the market to supply coal. Plus, alternative sources of power, such as hydroelectric, have been disrupted by inadequate rain during the monsoon season. The danger now is that India could face the same disruption to industrial activity that has already happened in China. If that happens, growth forecasts will need to be revised downward. The rising natural gas prices are also expected to inhibit economic growth and fuel higher inflation in Europe, leading to tighter monetary policy by the European Central Bank and the Bank of England.
The impact of the circumstances can be quite massive as Western countries are approaching the holiday season and electronics producers might face some serious problems amid disrupted shipping, distribution, retailing, and overseas manufacturing which all depend on components from China.
2 - Shipping Costs Decline
The current and severe electricity crisis in China has already started impacting the global economy and more particularly, the United States. According to recent reports, the cost of shipping containers from China to the United States fell sharply in the past two weeks. Specifically, the cost of shipping a 40-foot container from China to the US West Coast fell from US$15,000 a week ago to US$8,000 this week. The cost of shipping from China to the US East Coast fell by a quarter. Although the cost has fallen sharply, keep in mind that, prior to the pandemic, the cost of shipping across the Pacific was about US$1,500. Thus, costs remain relatively high. This reflects strong US demand for durable goods combined with disruption to the supply of containers and container ships.
So, how has the electricity shortage made an impact? The shortage of electricity has caused a decline in manufacturing production as factories are forced to operate limited hours. Thus, the supply of goods available to be shipped has likely declined, reducing the demand for shipping capacity. As long as the shortage lasts, it is likely to have a negative impact on shipping costs. Lower shipping costs will reduce inflationary pressure in the United States. Even then, limited supplies of durable goods will boost inflationary pressures as long as demand remains strong, especially during the upcoming holiday season.
Financial Guidance
“Beware of little expenses; a small leak will sink a great ship.” - Benjamin Franklin
America’s founding fathers points out how a small leak can bring down an enormous ship. That means a supposedly “little” expense can eventually sink your budget. Especially when those “little” expenses add up to a significant amount of money you didn’t budget for.
Money Fact
493 People Became Billionaires Over the Past Year
The coronavirus pandemic widened the wealth gap, with the rich getter richer and the poor getting poorer. 493 people were new additions to the 2021 Forbes Billionaire list. That’s about one new billionaire every 17 hours.
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