China Covid-19 outbreak - The global supply chain "struggles" again

“Zero Covid” goal leads to large-scale blockade

In recent days, the number of covid-19 infections has increased dramatically since the early 2020 outbreak in Wuhan. The Omicron variant spread so quickly that the Chinese authorities made the decision to tighten controls across the country, including the main production centers in Shenzhen and Dongguan. This leads to the paralysis of commodity factories.

“Zero Covid” goal leads to large-scale blockade

According to shipowners, analysts and supply chain managers, while China's main ports remain open and ships continue to dock, congestion is increasing and some container ships are routing back to avoid the delay that is almost certain to occur.

They said charter rates are likely to increase while the total transit time is getting longer and longer.

Continued supply chain crisis

According to Mr. Jasmine Wall, Asia-Pacific director of SEKO Logistics, “Container loading and unloading volumes are falling massively at Shenzhen's Yantian port, the world's fourth largest container port. world, as port workers, truck drivers and factory workers have to stay home due to the Covid-19 epidemic.”

And Mr. Lars Jensen - CEO of Vespucci Maritime transport consulting company said: "The current situation of Covid-19 epidemic in China will make the transportation of goods to and from Chinese ports will be difficult. becomes difficult and therefore whether terminal ports are open will become an issue.” And according to Mr. Lars Jensen, "the current situation will impact supply chain disruption, thereby prolonging the current supply chain crisis."

Continued supply chain crisis

As of March 16, 2022, there were 34 ships off the coast of Shenzhen waiting to dock, compared with an average of seven a year ago. In Qingdao, a port city in eastern China, there are about 30 ships waiting to dock.

Meanwhile, charter rates for a 40-foot container remain close to all-time highs on major global shipping lanes, trading at around $16,000 for the China-US West Coast service. , and nearly 13,000 USD from China to Europe.

Risks are always hidden

Looking back at China's Covid-19 blockades in 2021, it can be seen that the operation at Yantian port was cut to only of capacity, causing more severe global shipping disruptions than in the past. incident caused by the Suez canal being closed for 6 days last year after the container ship Ever Given ran aground (according to the director of Maersk, the largest container shipping company in the world).

Although supply chain experts say China's ports can now better cope with staff shortages and transport disruptions, there are concerns that Yantian may have to close if prolonged Covid infection and widespread restrictions.

Even with ocean freight terminals open, the lack of truck drivers and warehouse operators will still lead to delays in loading and unloading shipping containers to port.

Supply chain crisis - Inflation is increasing

Besides Shenzhen, other nearby export hubs are also experiencing congestion, including Hong Kong and Shanghai. Ships may have to wait until congestion eases to load and unload, and that means phones, TVs and toys will take longer to get from China to the US.

“I think US consumers and those that ship to North America will be hit the hardest,” said Peter Sand, director of cargo analytics at Xeneta.

Supply chain crisis - Inflation is increasing

Shipping lines are also facing a rapid increase in cases of the Omicron variant in China, as seen in other parts of the world. That leads to broader disruptions and could impact global inflation, which is already very high.

"The Chinese authorities' zero-tolerance policy seems to suggest the possibility of further blockades," said Niels Rasmussen, shipping analysis director at BIMCO Shipowners Association. "Decelerating Chinese exports will exacerbate supply chain delays and reduce the stockpiles that businesses hold, which in turn can drive prices up," he said.

According to CafeF