When power cuts first became across a number of industrial regions in China last month, a conspiracy theory started circulating on the Chinese internet. 

“It is a deliberate strategic move by the government to export inflation to the US,” the theory went. 

Government-affiliated publications were quick to dismiss the theory. Nonetheless, it only died down after news started emerging that India is suffering from the same surge of coal prices, and consequently power shortages. 

A related, but probably unintended consequence of the power cuts are … falling shipping prices. 

Matson’s shipping rate from China to the US West coast has dropped from CNY30/kilo (US$4.7) to as low as CNY13/kilo (US$2) in just two weeks. 

While it is still higher than the $1.5/kilo prior to the pandemic, the recent drop is both deep and fast. Industry watchers we spoke to are divided on whether the drop is temporary or more long lasting. 

They are, however, not exactly by the exact makeup of the causes for the drop. Again, we can find some clues from the online forums of freight forwarders

It seems that the reason is a combination of real slowing in demand and speculators exiting their positions. 

For example, a number of factories in Yangtze has slowed production, causing the real demand of shipping out of Shanghai or Ningbo to actually drop. 

Sensing the uncertainty and also the potential government crackdown, some speculators who had hoarded container space have been releasing them, tilting the balance of supply-demand even further. 

As for the media reports that companies are shifting production elsewhere because of power cuts in China, well, haven’t they been predicting such a shift every two quarters? 

Only if it was that easy.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].