China zero-Covid lockdowns, CNY holiday impact supply chains, ports
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On Jan. 10, 2022 the streets of Tianjin (China) are empty as the city goes into partial lockdown due to an increase in cases of omicron.
Future Publishing | Future Publishing | Getty Images
According to CNBC, covid lockdowns, restrictions, and quarantines have created a backlog in China’s ports.
The extended Lunar New Year holidays in China mean that air freight rates are expected to rise and some shipping companies may suspend services. It is now the time when overwhelmed supply chains will be under the spotlight.
It comes as China pushes ahead with its zero-Covid strategy — which means a recent spike in infections has resulted in lockdowns and curbs in the largest port hubs and major cities across the country.
“Although ports are still open, current restrictions – like mandatory quarantines and testing – continue to slow down transport and cause delays,” Atul Vashistha, founder and chairman of supply chain consultancy Supply Wisdom, told CNBC.
He said that China’s top priority is to stop the growth of Covid cases in the lead up to next month’s Winter Olympics, and the forthcoming Lunar New Year. But, there has been some confusion caused by the port restrictions.
The products are growing while the ships are being barred from entry. Between negative PCR-test requirements and last-minute re-routing, 2022 is starting off like 2021 ended – chaos,” Vashistha said referring to polymerase chain reaction Covid tests.
In addition to the main port cities of Shenzhen Tianjin and Ningbo where cases have been reported, there has also been one in Tianjin. industrial hub of Xi’anThis can lead to lockdowns or other curbs.
Other cities have reported infections as well, such as DalianAnd Anyang.
Beijing’s capital reported its first local-transmitted omicron infection Jan. 15. This was less than two weeks ahead of the Winter Olympics and it happened on Sunday. Beijing’s authorities introduced new restrictions After nine cases of locally-transmitted disease were discovered in Beijing one day before, a new outbreak was contained.
The Ningbo outbreak in DecemberAlso, it caused some curbs and disrupted traffic at Ningbo Zhoushan which is the third most crowded port in the entire world.
Operations have since largely resumed, but shipments were diverted to Shanghai — the busiest port in the world — causing congestion and delays there too, Judah Levine, head of research at freight booking platform Freightos Group, told CNBC.
project44, an IT company that specializes in supply chain management said that some shippers were unhappy with the move from Ningbo port towards Shanghai. This was due to increased congestion at Shanghai. According to project44, Shanghai saw an 86% rise in blank sailings year over year. Blank sailings is an industry term that refers to when a ship skips a port or entire journey altogether.
Freightos CEO Levine said in an email that last week all eyes were set on China and how strict measures to contain outbreaks might impact logistics. On Jan. 19, he stated that steps were taken to stop the spread of positive case detections in Beijing, Shenzhen Tianjin and Dalian.
Ratios for air freight are increasing
Levine reported that the sea shipping spot rate for Asia to U.S. West Coast increased 4%, although they won’t go much higher due to a dip in manufacturing and the Lunar New Year.
He added that the air cargo rate is still high.
“With enough time to still move cargo by air, the pre-holiday rush, along with pandemic-restricted capacity is pushing air cargo rates up,” he said, adding that the Freightos Air Index showed the China to North Europe rate was at $9.59 per kg in mid January— up over 50% from below $6 per kg at the start of January.
China’s most important holiday, the Lunar New Year, is celebrated by hundreds of millions who travel from their cities to return home for this traditional Chinese holiday.
Vashistha reports that major shipping companies, including Ocean Network Express, Hapag-Lloyd and Hapag-Lloyd suspended operations and services earlier than usual to mark the holiday season. He said that this is straining already fragile supply chains.
The latest crisis comes at an unfortunate time for global supply chains. These people were already under stress from Christmas and the omicron variant. But port problems in China add to the complexity.
John Ferguson
Economist Impact
Shipping costs have been falling over the past couple of months as the supply chain backlog eased, but the recent Covid surge and any potential port closures are going to cast a shadow over any progress that has been made, said Paul Gruenwald, chief economist at S&P Global Ratings.
He said that he believes this will slow down the improvements we have seen over the past couple of months, as he stated to CNBC’s “Squawk box Asia” program on Thursday.
China’s zero-Covid Policy on Winter Olympics
China’s Zero-Tolerance Policy for Covid in China will impact global supply chains greatly, according to John Ferguson, practice leader for globalization and trade finance at think tank Economist Impact.
The latest shock hits at an unfortunate time for the global supply chains. These people were already stressing from Christmas combined with the Omicron variant. But port problems in China bring these issues to a whole new level,” Ferguson stated.
He stated that China’s zero-Covid strategy was crucial as any further outbreaks would result in additional closures and lockdowns of key areas. China is not likely to abandon its Covid strategy for 2022, considering that China has important political events and the Winter Olympics.
He said that one bright spot was the fact that so many businesses have been planning for stressful supply chain scenarios and now are implementing their strategies.
But it’s not all easy sailing.
He added that “Global companies are becoming more agile during this crisis but we should still expect some delays because of this latest round in supply chain stress.”
Vashistha, Supply Wisdom’s chief executive, summarized the situation as follows: “Combine China’s covid-induced port backlogs and China’s zero tolerance policies with increased aviation capacity and you will see that the problem is even worse: Cargo continues its surge without any way to transport it and no place to take it.”
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