New crown pneumonia epidemic in Chinese ports intensifies delays in global supply chains

The weeks of disruption at one of the world’s largest container terminals in southern China have put tremendous pressure on the already stretched global shipping industry and exacerbated supply chain delays for global manufacturers and retailers.

Shenzhen Yantian Terminal Closed for almost a week In late May, port workers tested positive for Covid-19; a few weeks later, productivity had returned to only about 70% of normal levels.

Yantian handles 13 million 20-foot containers each year, making it the third largest terminal in the world. But the facility is operated by Hong Kong-based Hutchison Port, and congestion has spread to other nearby terminals, such as Nansha and Shekou. Local authorities in the area blocked roads and closed some commercial areas to stop the spread of the virus.

Even if a relatively small epidemic occurs in China’s port cities, this situation has exposed the vulnerability of global shipping in future delays. Lars Jensen, chief executive of consulting firm Vespucci Maritime, said the incident highlights the greater risk of shutdowns if the virus hits larger ports such as Shanghai.

“The Chinese authorities are trying to crack down on the smallest outbreaks… It only takes a few single cases to close a large area. We can see a bigger impact,” he said.

At the height of the disruption, Leslie Wang, owner of the Guangzhou garment factory, told the Financial Times that the situation was “like a nightmare”.

She said earlier this month that although she has tested all workers for the virus and kept the production line running normally, “the goods have been piled up in the freight company and cannot be shipped at all.”

Since the end of last year, shipping has been under tremendous pressure due to a shortage of empty containers due to epidemic-related control measures (such as border restrictions). The blockage of the Suez Canal in March aggravated the situation and caused further delays.

After the pandemic fueled an online shopping boom and developed economies recovered from last year’s historical recession, shipping companies are also struggling to keep up with the growing demand for their services.

Therefore, according to Freightos, the cost of transporting a 40-foot container on the route from Asia to Northern Europe recently exceeded US$11,000 for the first time, up from approximately US$8,500 in mid-May and US$2,000 in October last year.

Although Hapag-Lloyd CEO Rolf Habben Jansen stated that “I think the worst is over”, he warned that “we have not seen the arrival of Yantian, and there are other surprises. The last few quarters.” .

Some economists warned when the epidemic first broke out that the disruption of Yantian and its impact on shipping costs could increase global inflationary pressures. This has intensified people’s concerns that, driven by rising commodities, the soaring prices of Chinese factory deliveries will increase their export prices.

But Larry Hu, chief China economist at Macquarie Group, said that overall, Chinese exports help reduce price growth. “China’s share of global exports has reached [a] New highs in response to the rebound in global commodity demand and production constraints elsewhere,” he said. “Otherwise, global inflationary pressures may be higher. ”

Peter Sand, Bimco’s chief shipping analyst, stated that he believes that “the freight is not [inflation] fire”.

In order to solve the interruption problem, shipping companies have transferred hundreds of ships to other ports, and some ships are jumping over southern China to avoid the backlog. According to Maersk, the world’s largest container shipping company, the average waiting time for ships to enter the terminal has reached 16 days.

The line chart of the Global Reliability Program (Percentage on Time) shows that the pandemic has caused a lot of shipping delay

According to its vice president of European supply chain Klaus Gaeb (Klaus Gaeb), electrical system manufacturer Eaton has 25 containers stranded in southern China. Therefore, the company will have to wait an additional two weeks to receive the supplies. After that, it had to re-order the items in 45 containers because the original cargo was stuck during the blockage of the Suez Canal, so it waited for two to three months.

Shippers have been looking for alternatives such as air and rail to transport goods from Asia to Europe, but these options are becoming increasingly difficult to achieve. Gaeb said that the price of goods transported in Eurasia has more than doubled from pre-pandemic levels to $36,000 per truck.

According to shipping industry data, for the rest of this year, global manufacturers and retailers will continue to experience delays, the supply of cargo ships is limited, and freight rates will hit record highs.

Otto Schacht, executive vice president of maritime logistics at Kuehne+Nagel, one of the world’s largest freight forwarders, said that the timing of the latest interruption is particularly regrettable because shipping is about to enter the peak season when retailers stock up for returns. -School and year-end purchases.

“How quickly do we return to the pre-Covid supply chain reliability? About six to nine months,” he said.

According to Jensen of Vespucci Maritime, the Yantian backlog “helps push the point in time into the future when we return to normal”.

He warned: “There is a significant risk in pushing the return point to 2022.”

Additional reporting by Shanghai Wang Xueqiao, Shenzhen Liu Qianer and London Patricia Nilsson

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