A covid outbreak in the Chinese port exacerbates delays in the global supply chain

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

Yantian Terminal to Shenzhen closed almost a week in late May after port workers tested positive for Covid-19; weeks later, productivity has only recovered to 70% of normal levels.

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

How quickly do we get back to the reliability of the previous supply chain to Covid? Probably six to nine months

The situation exposes the vulnerability of global shipping to future delays if even relatively minor outbreaks occur in Chinese port cities. Lars Jensen, CEO of consulting firm Vespucci Maritime, said the incident highlighted the risk of an even more disastrous closure if the virus reached larger ports such as Shanghai.

“Chinese authorities are trying hard to crack down on smaller outbreaks. . . It only takes a few cases to close large areas. We could see much bigger impacts, ”he said.

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

Although he tested the virus on all his workers and kept the production lines running, “the merchandise has accumulated in the cargo company and cannot be shipped at all,” he said early on. this month.

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

Shipping companies are also struggling to keep up with rising demand for their services after the pandemic fueled a boom in online shopping and when advanced economies bounced back from last year’s historic recession. .

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

Although Rolf Habben Jansen, CEO of Hapag-Lloyd, said “I would like to think we’ve had the worst back,” he warned that “we didn’t see Yantian coming either and there have been other surprises lately a couple of quarters ”.

Some economists warned when the outbreak first began, Yantian’s disruption and its impact on shipping costs could add to global inflationary pressures. This adds to concerns that rising factory prices in China, driven by a concentration of raw materials, will increase the prices of its exports.

But Larry Hu, China’s chief economist at the Macquarie Group, said overall Chinese exports helped keep the price growth rate down. “China’s share in world exports has arrived [a] new high, in response to the recovery in global demand for goods and restricted production elsewhere, “he said.” Otherwise, global inflationary pressure could be even greater. ”

Peter Sand, chief analyst at Bimco’s shipping company, said he didn’t think “freight rates were putting wood on the market [inflation] fire ”.

In an attempt to fix the disruption, shipping companies have diverted hundreds of ships to other ports and some ships are skipping south of China to dodge delays. The average waiting time for ships entering the terminal has reached 16 days, according to Maersk, the world’s largest container shipping company.

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 supplies. This followed a two- to three-month wait for items in 45 containers that had to be reordered because the original goods were trapped during the Suez Canal blockade.

Shippers have been looking for alternatives like airport and rail to get goods from Asia to Europe, but these options have become increasingly difficult to look for. Gaeb said prices for transporting goods to Eurasia have doubled more than pre-pandemic levels to $ 36,000 per truck.

Delays will be maintained for manufacturers and retailers around the world for the rest of the year, as limited availability on cargo ships and record cargo rates will be high, according to data from the shipbuilding 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 about to enter high season when the retailers stock up on return -school and end-of-year purchases.

“How quickly do we return to the reliability of the previous supply chain to Covid? Probably six to nine months, ”he said.

Jensen, of Vespucci Maritime, said Yantian’s lag “serves to propel the point of time into the future when we return to normalcy.”

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

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