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Goldman Says U.S, By Joanna Ossinger, 13. april 2020 :

U.S. stocks are unlikely to make fresh lows thanks to the “do whatever it takes” approach of policy makers, according to Goldman Sachs Group Inc.
A combination of unprecedented policy support and a flattening viral curve has “dramatically” cut risks to both markets and the American economy, strategists including David Kostin wrote in a note Monday. If the U.S. doesn’t have a second surge in infections after the economy reopens, equity markets are unlikely to make new lows, they said.
“The Fed and Congress have precluded the prospect of a complete economic collapse,” the strategists wrote. “These policy actions mean our previous near-term downside of 2,000 is no longer likely” for the S&P 500 Index.
The U.S. benchmark closed Thursday around the 2,790 level, having hit a three-year low of 2,237 on March 23.
Goldman cited policy measures including rate cuts, the Federal Reserve’s Commercial Paper Funding Facility and fiscal stimulus such as the $2 trillion CARES act among the “numerous and increasingly powerful” actions that have spurred equity investors to take a risk-on view.

Meanwhile, the strategists expect investors to look through first-quarter results from the upcoming earnings season, and focus instead on the outlook for 2021, according to the note.
“Despite the likely steady stream of weak earnings reports, 1Q earnings season will not represent a major negative catalyst for equity market performance,” they wrote. “Our year-end S&P 500 target remains 3,000.”

Drewry Supply Chain Advisors, by Philip Danas, London, United Kingdom :

Transport capacity shortages, disruptions to supply chains and inability to plan since late January have been a dangerous combination. But will all 3 major problems last for shippers?

Since February, most international shippers have had to fight on 3 major fronts:

1. Disruptions to or the complete breakdown of China-dependent supply chains, meaning delays to supplies and resulting falls in containerised exports and imports;

2. Shortages of shipping capacity (105 cancelled sailings in the transpacific and Asia-North Europe/Mediterranean routes alone in February) and container equipment (of reefer containers in Europe, of dry containers in the US Gulf, among others);

3. Lack of insight into the duration of the dual sourcing and transport problems, making planning impossible and forcing importers and their transport staff to “wait and see”.

To date, these serious problems have caused millions of dollars of container detention costs for shippers, billions of dollars of revenue shortfalls for carriers, a situation where desperate shippers were forced to pay premium rates to secure capacity for urgent shipments, a record number of “idle ships” waiting for employment and an unknown cost from lost business and stockouts.

On the human side, Chinese transport and customs office staff were initially under quarantine (many have returned to work and offices have re-opened since), many corporations have banned foreign travel and/or external meetings with suppliers and customers, and pressure is increasing to do business electronically and remotely – an unproductive way to handle complex negotiations or site inspections.
The big question on everybody’s lips is: how long will these major issues last? We do not have the full answers to this question, but Drewry can provide here strong indications of the next phase of how the industry will respond to the crisis, based on our consultancy work for shippers, ports and shipping lines and based on research from our Drewry Maritime Research business unit.

1. Disruptions to supply chains – what next?

Judging from statistics on truck traffic, China’s supply chain sector is now back to 65-70% of the levels of March 2019. South China and East China have largely recovered, but trucking to Hubei province in inland Chinas is still only 20% of year-earlier levels. Checks with Chinese contacts of Drewry indicate that manufacturing has returned to 70% of full capacity. “China is trying very hard to maintain its status in global supply chains, by urging workers and factories back to work as soon as possible, “ said Han Ning, country manager for China at Drewry. But, for manufacturers, after an expected catch-up of production in March and April, she expects

2 challenges:

(1) factories will need new orders to carry on (this will depend on consumption of countries importing from China, in particular in Europe and the US); and

(2) supply of raw materials and parts might be disrupted due to the virus disruptions in other countries. “These two factors will make normalization of China manufacturing more difficult,” Han added. More US importers are turning to South East Asian producers to diversify their supply chains away from China.

2. Transport capacity and container equipment – what next?

Containership capacity will probably return from late March. Carriers appear to have more confidence that ships leaving China will not leave empty. CMA CGM (French container transportation and shipping company (My addition)) aid in a statement on 6th March: “There has been an upturn in volumes and a major catch-up effect is expected once the health situation stabilizes, as Western countries will be seeking to rebuild their inventories. The Group therefore expects to operate a normal capacity fleet as of mid-March.”
Some carriers are repositioning empty containers, currently piling up on the US West Coast, back to Asia.
But a lack of mismatch between ship capacity supply and demand will create acute volatility of freight rates and a potential shortage of capacity for smaller shippers and shippers with low-rated cargoes. Already, Europe-to-China spot rates have jumped by 31% in the past 3 weeks.
The number of cancelled sailings on 2 major routes from Asia during March will be only about one third of what they were in February.
The US National Retail Federation forecast that total box traffic at US ports in April will be up 4.5% from April 2019 and 29% higher than in February 2020 (the low point of the recent downturn).
Expect NVOCCs (A freight forwarder agent(My addition)) and opportunistic carriers to squeeze shippers and demand premium rates in return for scarce shipping capacity. It will get harder for shippers without capacity guarantees to get enough space on ships when the volume rebound happens.

3. Ability to plan – what next?

Shippers who recently spoke with Drewry expressed concerns over the considerable uncertainty affecting their and the transport businesses. Consumer confidence is several countries has decreased. It appears that the production shock in China is getting under control, but so much else is unknown outside China. Will consumer demand and production outside China be hit for a long period of time? Will industry dependent on airfreighted supplies (such as pharmaceuticals and electronics) be hit by the reduction of international flights and the closure of some borders to non-domestic truckers? Drewry recently outlined 3 scenarios of future developments.
There is uncertainty, but what we know is that the market will be volatile and unstable. So, we urge shippers, forwarders and others to react fast to market and industry changes and to consider short-term arrangements rather than long commitments, in the current unpredictable situation. Watch the development of the spot market, as you may have to use it. Consider the re-use of import containers for exports to secure equipment more easily, if you have two-way shipments.
Similarly, consider what could happen to relative freight rates if volatility swings from a Chinese mini-recovery to a consumer-downturn-and-oil-price-crash shipping oversupply scenario.
Drewry provides a number of resources to assist shippers, including the Drewry Container Forecaster, the Drewry cancelled sailings and ship waiting times weekly tracker, the Drewry Container Freight Rate Insight global database of spot rates, customised ocean freight procurement consultancy services and the Drewry low-sulphur bunker price tracker.
Shippers will need a lot of energy, good data… and some luck to tackle the ongoing challenges of the Coronovirus, however long the crisis lasts.

For any information on the issues raised in this briefing, please contact:
Drewry Supply Chain Advisors, 15-17 Christopher St, London, EC2A 2BS, United Kingdom
Philip Damas, e: supplychains@drewry.co.uk, T +44 (0)20 7538 0191

https://www.drewry.co.uk/