Delays in exports return to reality due to lockdowns in China

Global shipping was just starting to recover from the chaos of the pandemic, but port congestion and export delays are back and could last for some time.

The lockdowns in China due to the rise in Covid-19 cases have wreaked havoc in Shanghai, the city where the world’s largest container port is located, and are now causing problems in other major ports around the world.

Some Chinese cities, including Shanghai, have started to ease Covid restrictions in recent days, but experts say the damage has already been done and global transport will suffer until the summer. This could put even more pressure on global supply chains that are already suffering from Russia’s invasion of Ukraine and keep inflation heated.

Data from Project44, which tracks global supply chains, showed that delays in shipments between China and major US and European ports have quadrupled since late March, when China closed the city of Shanghai.

In late April, ships from China bound for Seattle were taking four days longer than expected to arrive, up from about a day the month before.

The time it takes for ships to leave China and reach the world’s major ports has steadily increased over the past year, but there have been some signs of relief since December, with transit times between Shanghai and Long Beach, for example, falling in January and February.

Since March, however, there has been a sharp increase again in transit times on this route.

Adding to the problem, many truckers have struggled to reach Chinese ports due to travel restrictions and Covid testing requirements.

Shipping giant Maersk warned in a statement last month that road transport services in Shanghai would be “severely” impacted by these restrictions.

“With the manufacturing industry shutting down [em Xangai] and truckers unable to travel quickly, exports were reduced and shipment delays increased,” said Josh Brazil, Director of Supply Chain Data Insights at Project44.

The delays “will continue into the summer months” as factories struggle to return to normal operations in Shanghai, he added.

Although authorities have allowed some companies to restart production, many workers are still stuck in quarantine at home. Factories reopening are facing component shortages and difficulty securing trucks to transport goods in or out of the port.

“The ripples in shipping delays are just starting to become visible and are expected to extend into the next few months,” Brazil said.

Shanghai — China’s main financial center and most populous city — has been under a strict lockdown since late March. More than 8 million residents are still banned from leaving their residential complexes. The restrictions have spread to other cities, including Beijing, the country’s capital.

The port of Shanghai remained open throughout the lockdown, but data from several shipping companies shows a growing backlog of ships and containers.

US supply chain companies have expressed concern about the new chaos heading towards US ports, which are still reeling from severe congestion and delays suffered last year.

Shelley Simpson, chief commercial officer for JB Hunt Transport Services, said late last month that while there has been “temporary relief” at US ports, things could get a lot “much worse” this summer because of what is happening in the US. China.

Port congestion

Boarding lines are getting worse in China — and in other parts of the world.

Nearly 20% of container ships worldwide are currently waiting outside congested ports, according to research published last Thursday by Windward, an Israel-based global maritime data company.

Nearly a quarter of these unberthed ships are stranded outside Chinese ports. There are 412 ships, an increase of 58% since February, the survey added. “It is clear that the lockdowns in China have caused a bottleneck,” the company added.

Across China, at least 27 cities are under full or partial lockdown, which could affect up to 185 million residents across the country, according to the latest calculation by China. CNN on Wednesday. Beijing effectively closed its largest district this week.

President Xi Jinping stated this week that he would continue with his zero-tolerance approach to Covid. On Thursday, Xi told all levels of government that they “must resolutely adhere to the policy.”

China is home to seven of the world’s ten largest container ports, including Shanghai, Ningbo-Zhoushan, Shenzhen and Hong Kong. In Shanghai — the epicenter of China’s current Covid outbreak, the situation remains dire.

The number of ships waiting at the city’s port rose to 384 on April 25, up 27% from the previous month, according to the latest data from S&P Global Market Intelligence.

Pressure is also building in other Chinese ports as ships try to find alternative ports to dock. Ships have faced increasing delays since late March outside the port of Ningbo-Zhoushan, the world’s third-largest port, less than 100 miles from Shanghai, according to Lloyd’s List Intelligence.

At the height of the lockdown in Shanghai, containers were stranded for up to 15 days at the port before being picked up by truckers, up from less than 5 days when the restrictions went into effect, Project 44 data showed. dropped but it was still 10 days last Wednesday.

Zhang Wei, deputy mayor of Shanghai, acknowledged last week that the city is seeing “reduced efficiency” in freight transport and “poor logistics” since the lockdown.

Factories and commerce affected

The turmoil at ports has already hit China’s factories and foreign trade as manufacturers have to wait longer to get raw materials.

It is also more difficult for them to ship their products to customers. Finished goods inventories have reached their highest level in about a decade as goods pile up in warehouses due to weak demand and the difficulty of finding trucks to move them.

The latest PMI surveys — released on Saturday — showed factory activity had dropped to the worst level since February 2020, when China was battling the initial Covid outbreak. New export orders that manufacturers received in April fell at a much faster pace than in March.

The drop in export orders showed that chaos at some key ports, including Shanghai, had affected China’s trade with the rest of the world, according to analysts at Goldman Sachs.

“It is concerning that there is much evidence of worsening supply pressures, with supplier lead times collapsing, rising input prices and finished goods inventories reaching their highest level since June 2012,” wrote Mitul Kotecha, head of of TD Securities’ emerging markets strategy in a report.

“Such supply pressures will have ramifications across all chains globally, as already evidenced in some recent US first-quarter earnings reports in the technology sector,” he added.

Global inflation set to get stronger

The situation in Shanghai will push up global inflation this year, said Daejin Lee, associate director at S&P Global Market Intelligence.

He highlighted that last year’s inflation was driven by two factors — shortages in supply of key parts due to supply chain bottlenecks and record container freight rates. Both problems continue this year, even as Russia’s invasion of Ukraine has fueled global inflation by pushing up prices for energy and other key commodities.

“Another delay” in maritime supplies of key parts because of congestion at China’s ports could raise consumer prices “much faster than previously expected,” Lee said.

Maersk communicated on Wednesday that freight rates will remain high as supply chain pressures persist. According to the company, congestion in sectors such as road transport and warehousing in mainland China has created “bottlenecks, resulting in challenging supply chain management services and high fees.”

The company’s average freight rate jumped 71% in the first quarter from a year earlier.