Wednesday, July 28, 2021

Chinese port Covid outbreak exacerbates global supply chain delays

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Weeks of disruption at one of the world’s largest container terminals in southern China have put great pressure on the already stretched global shipping industry, worsening supply chain delays for manufacturers and retailers around the world. .

The Yantian terminal in Shenzhen closed for nearly a week in late May after port workers tested positive for Covid-19; weeks later, productivity has only recovered to about 70 percent of normal levels.

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

The situation exposes the vulnerability of global shipping to future delays if even relatively minor outbreaks occur in Chinese port cities. Lars Jensen, chief executive of consultancy Vespucci Maritime, said the incident highlighted the risk of an even more disastrous shutdown if the virus hits larger ports like Shanghai.

“The Chinese authorities are trying to crack down on the smaller outbreaks. . . Only a few cases are needed to close large areas. We could see much bigger impacts, ”he said.

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

Although it screened all its workers for the virus and kept the production lines running, “the goods have been piled up at the shipping company and cannot be shipped at all,” he said earlier this month.

Shipping has been under immense stress since late last year, as controls related to the pandemic, such as border restrictions, led to a shortage of empty containers. The situation was denounced by the blockade of the Suez Canal in March, which caused further delays.

Shipping companies are also struggling to keep up with growing demand for their services after the pandemic fueled an online shopping boom and as advanced economies rebound from last year’s historic recession.

As a consequence, the cost of shipping a 40-foot container on the Asia to Northern Europe route recently topped $ 11,000 for the first time, up from $ 8,500 in mid-May and $ 2,000 last October, according to Freightos.

Although Rolf Habben Jansen, CEO of Hapag-Lloyd, said that “I would like to think that we have left the worst behind,” he cautioned that “we also did not see Yantian coming and there have been other surprises over the last few quarters.

The disruption at Yantian and its impact on shipping costs could add to global inflationary pressures, some economists warned when the outbreak occurred. This added to concerns that rising prices at factories in China, driven by a rebound in raw materials, will push up the prices of its exports.

But Larry Hu, chief China economist at Macquarie Group, said that overall, Chinese exports helped keep the price growth rate low. “China’s share of world exports has reached [a] new high, in response to the rebound in demand for goods globally and limited production elsewhere, ”he said. “Otherwise, global inflationary pressure could be even higher.”

Peter Sand, Bimco’s chief shipping analyst, said he does not believe that “freight rates are putting lumber into the [inflation] fire “.

In an attempt to fix the disruption, shipping companies have been diverting hundreds of vessels to other ports, with some vessels skipping southern China to avoid delays. The average wait time for ships entering the terminal has reached 16 days, according to Maersk, the world’s largest container shipping company.

Global Reliability Program Line Chart (% on Time) Showing Pandemic Has Created Massive Shipping Delays

Electrical systems maker Eaton has 25 of its containers held in southern China, according to Klaus Gaeb, its vice president of supply chain in Europe. As a result, the company will have to wait two more weeks to receive the supplies. That followed a two- to three-month wait for items in 45 containers that he had to reorder because the original products got stuck during the blockade of the Suez Canal.

Carriers have been looking for alternatives like air and rail to get goods from Asia to Europe, but those options have become increasingly difficult to pursue. Gaeb said prices to transport goods in Eurasia have more than doubled from pre-pandemic levels to $ 36,000 per truck.

Delays will persist for manufacturers and retailers around the world for the rest of the year, as will limited availability on cargo ships and record freight rates, according to figures from the shipping industry.

Otto Schacht, executive vice president of maritime logistics at Kuehne + Nagel, one of the world’s largest freight forwarders, said the timing of the latest outage was particularly unfortunate because shipping is close to entering peak season when retailers stock up for the return to -School and end-of-year shopping.

“How quickly do we get back to pre-Covid supply chain reliability? Probably six to nine months, ”he said.

Vespucci Maritime’s Jensen said Yantian’s order book “serves to drive the moment in the future when we get back to normal.”

“There is a significant risk that we will push the return point to 2022,” he warned.

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

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