Chinese Port Covid Outbreak Worsens Global Supply Chain Delays

Weeks of disruption at one of the world’s largest container terminals in southern China have strained the already strained global shipping industry, exacerbating supply chain delays for manufacturers and retailers of the whole world.

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

Yantian handles 13m20ft sea containers per year, making it the third largest terminal in the world. But congestion at the facility, operated by Hong Kong-headquartered Hutchison Ports, has spread to other nearby terminals such as Nansha and Shekou. Local authorities in the region have blocked roads and closed some shopping 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 epidemics occur in Chinese port cities. Lars Jensen, managing director of consultancy firm Vespucci Maritime, said the incident highlighted the risk of an even more disastrous shutdown if the virus hit larger ports such as Shanghai.

“Chinese authorities are trying to crack down on smaller epidemics. . . It only takes a few isolated cases 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 she has tested all of her workers for the virus and kept the production lines running, “the goods have been piled up in the freight company and cannot be shipped at all,” she said at the start. of the month.

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

Shipping companies are also struggling to meet growing demand for their services after the pandemic fueled a boom in online shopping, and as advanced economies recover from last year’s historic recession.

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

Although Rolf Habben Jansen, Managing Director of Hapag-Lloyd, said that “I would like to think we have the worst behind us,” he warned that “we also haven’t seen Yantian coming and there has been other surprises in the last two quarters ”.

The disruption at Yantian and its impact on shipping costs could add to global inflationary pressures, some economists warned when the epidemic first hit. This added to fears that the surge in ex-factory prices in China, fueled by a rally in raw materials, could push up the prices of its exports.

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

Peter Sand, chief shipping analyst at Bimco, said he didn’t think “freight rates are putting timber on the [inflation] Fire”.

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

Line graph of global reliability timeline (% on time) showing pandemic has created massive shipping delays

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

Shippers have sought out alternatives such as air and rail to move goods from Asia to Europe, but these options have become increasingly difficult to pursue. Gaeb said prices for transporting goods across 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 freighters and record freight rates, according to shipping industry figures.

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 disruption was particularly unfortunate as the shipment is about to enter peak season when retailers stock up for back-to-school and year-end shopping.

“How quickly have we returned to the reliability of the pre-Covid supply chain? Probably six to nine months, ”he said.

Jensen of Vespucci Maritime said Yantian’s backlog “serves to push the moment further into the future when we get back to normalcy”.

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

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

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