MORE DISRUPTION: Ukraine crisis commodity supply fears and China covid lockdowns are rekindling supply chain chaos. 50% of neon for semiconductors come from Ukraine. China tech hub Shenzhen is locked down. No.2 carmaker Volkswagen (VOW3.DE) sees more disruption from Ukraine than covid. Lack of wire harnesses saw early stoppage of its German production. Air freight logistics are hit by disrupted Russia overflight rights. Similarly, the China-EU overland route. Sanctions are disrupting shipping, on top of higher fuel costs. 15% of seafarers are from the two protagonists. This all means both lower trade volumes and higher prices. This hurts consumers but also helps inflation-proxy assets and those companies with pricing power.
‘PAIN’ INDEX: Our supply chain ‘pain’ index (see chart) is back within 15% of its recent high and up 30% since the start of year, on surging European natgas prices and rise in semiconductor DRAM prices and bulk shipping rates. Container rates are easing but are still over four times historic price levels, and with these high spot rates now being locked into long term contracts.
IMPACTS: This will prolong the recent inflation surge, and drive more demand for ‘inflation hedge’ hard-assets, from commodities (DJP) to listed real estate (XLRE). Defensive equities with pricing power, from staples (XLP) to luxury, will also be relative havens. Whilst retailers (@ShoppingCart) will be disrupted again. Autos (@AutoIndustry) and Semis (@ChipTech) may see less volumes but likely be offset by better pricing. Expect lower global trade volumes but high-for-longer freight rates, helping stocks from Maersk (MAERSKB.CO) to ZIM (ZIM).
All data, figures & charts are valid as of 15/03/2022