FTI Consulting International Trade Bulletin – 1st October

FTI’s Key Headlines

Fuel row sparks panic at the petrol pump

This week petrol has joined toilet paper and pasta in the exclusive club of panic bought products. A nation that once prided itself on keeping calm and carrying on, seems to have lost all confidence in the supply chains that keep the country functioning. The Government insists the panicked scenes at the petrol pumps are a self-fulfilling prophecy, as suppliers struggle to keep up with a huge spike. That doesn’t help. As ever: where there’s smoke, there’s fuel.

Rumours of shortages began with the Road Haulage Association (RHA) allegedly leaking select quotes from an industry zoom call hosted by the Cabinet Office, sparking a media firestorm. As people rushed to the pumps, petrol stations across the country quickly ran out of fuel.

A problem of distribution rather than reserves, the Government sort to allay fears by announcing that soldiers will be stood up, ready to drive the tankers. That provides no immediate fix. In the medium term, a visa scheme for 5,000 foreign HGV drivers has been announced. The Government, hamstrung by pledges not to reverse the Brexit bus, has made these visas are temporary, set to expire on Christmas Eve.

There is a shortage of drivers across Europe, and it is unlikely that many will leave employment there for a short-term contract here. The Government hopes that businesses will continue to increase salaries and let the market do its work – leaving the DVLA with a considerable task to clear a backlog of 40,000 driver tests cancelled during the pandemic. But, lurking in the background, is the very real risk that wage rises will lead to accelerating inflation.

A sack full of coal for Christmas

This week, there was more chilling news for UK consumers, with rising wholesale energy prices leading to a 12% rise in the Ofgem price cap. The UK relies on imports for around half of its oil and gas needs, and these have been hit by a combination of surging demand in Asia and Russian constriction of gas supplies. Britain is not the only country facing a “winter of discontent”, with China facing an energy crisis of its own due to a shortage of coal.

Shortages of the black stuff are particularly dangerous for China, which gets more than two-thirds of its electricity from coal-fired plants. Beijing strictly controls electricity prices, with the perverse outcome that suppliers cut output when supplies run low. As a result, outages have been reported in four provinces, and energy-intensive industries have had to limit their days of operation. As a result, Chinese factory activity shrunk to its lowest level since February 2020.

On Monday, the China Electricity Council announced it would expand coal procurement at “any price to ensure heating and power generation in winter.” But with imports of coal from Australia, the world’s second-largest coal exporter, banned by Beijing last year, this will prove easier said than done.

Closures at Chinese factories do not bode well for consumers in the run-up to the holiday season. The disruptions in China are local symptoms of a global energy shortage, and these blackouts are a growing domestic headache that isn’t going away.

Architect Biden’s Build Back Better for the World

The US is laying the foundations for an alternative to China’s Belt and Road Initiative (BRI), with President Biden dispatching a team of officials to Central America next week.  The scheme, dubbed “Build Back Better for the World”, was initially launched at June’s G7 Summit, with many allies sharing America’s displeasure with the BRI.

The Build Back Better scheme is rooted in Western ideas of human rights and environmental sustainability. It is designed to contrast strongly with the BRI, which has frequently been attacked by Western politicians for being expensive, corrupt, and damaging to the environment. Furthermore, reports of forced labour throughout the Belt and Road have given Washington hope that its offer will prove more attractive to developing nations.

America’s efforts to convince the rest of the world of the scheme’s merits will begin next week, with the US Deputy National Security Adviser for International Economics, Daleep Singh, leading a team of officials to countries including Colombia, Ecuador and Panama. Through meeting with Presidents, business leaders, and civic activists, the delegation hopes to ignite an interest in the new alliance.

Build Back Better is a challenging project. China has a spectacular head start, and could spend $1.3 trillion on the scheme by 2027. The G7 plan to spend no more than $100 billion. Which one buys you more bricks?

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