Massive Lockdowns in China and Implications for Shipping
Covid-19 is not over yet, with China reporting the worst outbreak since the onset of the pandemic. The third most populous city, Shenzhen was placed on lockdown this Sunday, and factories closed temporarily. Shanghai has also experienced a surge in cases, and new restrictions have been imposed.
Shenzhen is the home to the world’s third largest port while Shanghai is home the world’s largest. The extent to which the trans-Pacific route will be affected depends on how long factories and ports will be closed. According to experts, the worst-case scenario would be a major shockwave putting pressure on already strained global supply chains at a time progress has been made in the U.S.
Carriers report that the major ports are operating on schedule and as usual. Warehouses in Qingdao and Shanghai are operating normally while those in Shenzhen will reopen on Monday. Truckers loading and unloading at Qingdao and Shanghai require negative Covid-19 tests.
Experts also point out that a good scenario for ports would be if they continue to operate as usual while factories operate at a reduced capacity. This will help reduce backlogs so that more ships can be loaded and set sail. In the worst-case scenario, freight forwarders will be forced to cancel sailings. This can happen if Chinese ports close temporarily, with a short-term positive effect elsewhere, and in the U.S. in particular. A large volume of containers is currently stuck at U.S. ports, and the closure of Chinese ports will help alleviate this problem.
From what we have seen during Golden Week and the Chinese Lunar New Year, the longer containers are held in China, the fewer the issues at U.S. ports. At the same time, demand is still high and needs to be compensated for.
When the Yantian port reopened last year, the number of ships queuing at ports in South California skyrocketed. Freight rates also reached a record level.
Yet, the situation is somewhat different now in terms of demand. In 2021, the U.S. saw a record high surge in demand which seems to have slackened to some extent in 2022. While carriers report more bookings in April, this has not been so in March or February.
Conflict in Ukraine
Experts warn that the situation in Ukraine has already put inflationary pressures, causing commodity prices to surge. As a result, we are likely to see a drop in consumer spending and demand. The conflict has also caused supply chain disruptions, slowing down economic recovery.
At present, some 140 ships are stranded in the Black Sea, as many ports have temporarily closed. Global grain, coal, and oil flows have also been affected at a time when the worst supply chain backlogs seemed to be easing. Also, as ships stopped calling at Russian ports, ports in Germany, Latvia, and Estonia have experienced a surge in traffic, causing more delays, congestion, and disruption.