COVID-19 curbs at Chinese ports threaten to whiplash global supply chain

With the coronavirus induced COVID-19 infections spreading in China, the length of container ships queued up outside major Chinese ports are increasing by the day with outbreaks in manufacturing export hubs threatening to unleash a fresh wave of global supply chain shocks.

China is seeing its biggest spike in COVID-19 infections since early 2020, when it saw the first outbreak in Wuhan.

The spread of the Omicron variant has led to the imposition of movement controls across China, including in key manufacturing hubs of Shenzhen and Dongguan, paralysing factories ranging from car parts to flash drives.

Although China’s main ports continue to remain open with vessels continuing to dock, a congestion is building up leading to some container ships being told to re-routing or avoid lengthy delays, said ship owners, supply chain managers and analysts.

Charter rates are expected to shoot up while delays to shipping freight grow longer, opined analysts.

According to Jasmine Wall, Asia-Pacific manager at SEKO Logistics, the loading of containers at Shenzhen’s Yantian port, the world’s fourth largest container terminal, is “decreasing massively” following port workers, truckers and factory workers forced to stay at home to maintain COVID-19 protocols.

“This implies that it will become difficult to get cargo to and from the ports and hence whether the terminals are open or not becomes a moot point,” said Lars Jensen, CEO at Vespucci Maritime, a container shipping advisor. “It will have a disruptive impact on the supply chain – in turn prolonging the current supply chain crisis.”

Charter rates per 40-foot container remain close to all-time highs across major global shipping routes, trading at around $16,000 on the China-U.S. West Coast route and nearly $13,000 from China to Europe, according to Freightos shipping index.

In 2021, similar COVID lockdowns saw operations at Yantian’s capacity slashed by 75%, leading to a bigger disruption of global shipping than the one caused by the closure of the Suez Canal last year.

“Although Chinese ports are more resilient now to staff shortages and transport disruptions, there remains the fear that Yantian may have to shut if infections and restrictions spread,” opined supply chain experts.

According to JP Morgan Global PMI, supplier and shipping delays, while still elevated, had eased to their lowest level since early 2021 in February.

“If the (Yantian) port does close, then the whiplash effect when it reopens will lay waste to all the progress made in the U.S.,” said Bjorn Vang Jensen, vice president at consultancy Sea-Intelligence.

Furthermore, even if ocean freight terminals remain open, the lack of truck drivers and warehouse operators will lead to delays in filling shipping containers and taking them to port.

“I expect the consumers in the U.S. and shippers with cargo going for North America will be hardest hit,” said Peter Sand, Chief Analyst from freight analytics firm Xeneta.

To make matters more fraught, shipping lines are also contending with the possibility of a rapid escalation of Omicron variant COVID cases in China, which could result in more widespread disruptions and can fuel rising global inflation.

“The Chinese authorities’ zero-tolerance policy would seem to indicate a high likelihood of further lockdowns,” said Niels Rasmussen, Chief Shipping Analyst at BIMCO, a shipowner association.

“A slowdown in Chinese exports will exacerbate supply chain delays and reduce inventories held by businesses, which could drive further price increases.”

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