The war in Ukraine is seemingly entering a new phase as the Russian president calls for partial mobilization of Russian reserve troops, causing a knee-jerk reaction in the oil markets. On the other hand, China is standing firm on its stance that a negotiated resolution to the conflict should be the way to go.
There is little doubt that economic cooperation between these two nations will continue to grow, as China is also facing some economic hardships at home. So far, China has been reaping the benefits of cheaper Russian energy as Europe pilled sanctions upon sanctions on Russia.
Furthermore, China is opening up more as the costs of shipping goods internationally from the Shanghai port have dropped for the 14th week in a row, reaching levels seen last time in December 2020.
Foreign trade slowdown
Moreover, the over 60% drop in freight rates could be partially tied to the fact that international trade has slowed due to rising energy costs and raging inflation across the globe. In addition, Covid restrictions are slowly being removed worldwide.
Lu Ming, an agent with Shanghai Ocean Shipping Agency, claimed that the windfall in prices caused by Covid is not coming back any time soon.
“The windfall at shipping companies brought by the Covid-19 pandemic is history. The high shipping rates arising from the disruption in supply and demand created by the pandemic will never come back.”
Despite seasonal typhoons causing disruptions during September, this year, the major disruptor was actual demand, except for the energy industry, which boomed in 2022. This goes against the analyst’s predictions that container shipment costs were to remain high into 2023, causing further supply chain disruptions.
If the freight costs keep dropping and the energy crisis at least moderates, a pick up in global trade could occur, hopefully pressuring the rise of inflation. Regardless, the wider markets seem to be in for more volatility while the entire cycle plays out across all business niches.
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