The Biden administration moved last week to take steps to mitigate disruptions in supply chains that are increasingly inhibiting the flows of goods of all kinds in the United States and globally. President Biden himself spoke from the White House on the matter Wednesday, announcing several actions, including influencing the ports of Los Angeles and Long Beach to work 24 hours per day, 7 days a week to try to clear the backlog of ships waiting to unload cargoes, and allowing long-haul truckers to drive longer hours and more miles each day.
Analysts and observers immediately questioned whether moves such as these would have any real impact on the problem, which has been growing since the U.S. and the world began to recover from the COVID pandemic a year ago. To try to obtain insight into all of this and gain a better understanding of what is happening in energy-related supply chains, I connected with Lewis Black, CEO of Almonty Industries [ALMTF], a company that specializes in the mining, production and distribution of tungsten.
This was a follow-up to an interview I had conducted with Mr. Black in May, in which he described in great detail the issues surrounding China’s domination of supply chains related to critical minerals, and how that was likely to impact the progress of the energy transition.
“We knew there were supply chain issues six months ago, but the most visible one was for semi-conductors, because car plants started to shut down. Then, they had trouble getting polymers into Germany, so plastics were next,” Black said when I asked him how this all began. “But if you look at the UK right now – the 5th largest economy in the world – they actually have supermarkets with empty fruit, vegetables sections – they’re just not there. Now, the country’s not going to starve, but ultimately this is a great example. And no one saw that coming.
“Then there’s gasoline. A third of gas stations in the UK don’t have gasoline right now because there was a public run on them. So, you’ve certainly got supply chain issues, but also you have the drama of it all, which means people panic buy, which exacerbates the problem. Hysteria is a difficult animal to deal with.”
Black also pointed out that the supply chain issues were exacerbated by COVID lockdowns, mainly because that was a new dynamic that few understood how to plan for. In part, the world is now seeing the follow-on impacts of those and other government measures designed to respond to the pandemic.
We also discussed the view recently expressed by JP Morgan CEO Jamie Dimon that these big supply chain issues are temporary and that they will be worked out by the market sooner rather than later. Black largely agreed with that view, but also pointed out that “the market is one of the reasons this has happened. There’s a total disconnect now on shipping rates,” Black said. “For example: If you want to ship a container from, say, Europe to China, it will cost you somewhere in the range of $2,000. But if you want to ship [that same container] from China to the United States, I think it’s now as much as $30,000. So, if you’re in the container shipping business, you’re going to head for the gold rush.
“So, right now, anything that floats and can carry a container is trying to find a way from China to the U.S. The thing is, there’s nothing really going back from the U.S. to China, so the boats are going back empty. It’s cheaper to get them back quick than to take empty containers; therefore, you start to run out of containers.” In other words, this is a self-sustaining problem at the moment.
We also talked about how the issue with supply chains is impacting the critical minerals industry. Lewis’s initial response was blunt: “It’s a disaster. A total disaster,” he said.
“Virtually all of our [Almonty] material goes to the U.S.,” he continued. “In the old days I could get from the mine in Portugal door-to-door to the customer in Pennsylvania in 10 days, maximum. Now, I’m looking at anywhere from 6 to 8 weeks if I’m lucky. That’s if I can get an allocation on a boat. And the boat now goes on a vacation. It doesn’t go directly to the U.S. anymore; it goes via Brazil, where it picks up more cargo…It’s total chaos.”
Black said that all this chaos has had a major impact on shipping rates. A container that used to cost his company $1,200 to ship across the Atlantic now goes for $6,000, a 400% increase. Obviously, an increase in shipping rates results in higher prices for the minerals and other goods being shipped. The magnitude of the increase in costs, if it becomes long-term, will have a significant impact across the energy space, not just renewables, but also for oil, LNG and coal.
Unfortunately, Black is skeptical about the ability of the Biden Administration – or indeed, any political entity – to make any sort of major difference in the situation. One of the biggest problems he sees with the Biden approach is the ongoing manpower shortage at the ports.
“Firstly, you’ve got to man those ports,” he told me. “One of the reasons this has gotten out of hand is that you’re still running with limited staff. They’re not running at full capacity yet. A lot of people are still out due to the benefits they’re being paid for not working.”
But it’s more than just lack of staff at the ports – it’s about getting the goods moved away from those ports once they’ve been unloaded from the ships. “But more importantly, what about the truck drivers,” Black asked. “Say for instance the ports find a whole lot of people who know how to operate in this environment, and they find ways to unload these vessels more quickly. Normally, it takes 2 days, but now it’s taking as much as 30 days to unload. The time is increasing every day.
“So, now you have all this freight at the dock – do you have the capacity to store it? Let’s say you did, that thanks to your planning over the last 30 years you have enough space to store hundreds and hundreds more containers than you anticipated you’d ever have. Who’s going to deliver them? Is there suddenly a huge increase in heavy goods drivers? Are there suddenly enough flatbeds to move them all around?”
Obviously, not. It’s one thing for the administration to wave rules limiting the number of hours the truck drivers can put in on the job each day, but unless the number of drivers and the number of available trucks should dramatically increase, then the off-loaded goods will just languish in the ports. All you’ve accomplished is moving the bottleneck a step downstream.
Black also noted that the lack of coordination between governments during the pandemic helped to create the current supply chain difficulties. The fact that every port and every country adopted differing approaches to trying to contain the virus inevitably resulted in a high degree of uncertainty and confusion in the shipping industry. “There was virtually no coordination during the pandemic by world leaders,” Black noted, adding “they were all pushing each other out of the way to see who could do the most. I don’t expect that to change in their approach to this.”
Despite his concerns, Black reiterated that he remains optimistic that the market will ultimately adjust, and the current crisis will pass. “The markets will start to rebalance, but it will take some time,” he said.
Black doesn’t blame Biden and his administration for trying, but is pessimistic their efforts will improve the situation in a meaningful way. “The most important thing to understand, though, is that no politician is going to be able to solve this thing because it’s not a domestic issue: It’s a global issue.”