China’s zero epidemic blockade, Spring Festival holiday affects supply chain, ports

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Streets are deserted in Tianjin, China, January 10, 2022, as the city went into partial lockdown after a surge in omicron cases.

Hou Jienuo | Future Publishing | Getty Images

The coronavirus lockdowns, quarantines and restrictions are creating a backlog at some of China’s major ports, causing “chaos” and pushing up air freight rates by 50% in some cases, analysts told CNBC.

Airfreight prices soared ahead of China’s extended Lunar New Year holiday, with some shipping lines suspending services, again focusing on overwhelmed supply chains.

At the same time, China is advancing its zero-coronavirus strategy — meaning a recent surge in infections has led to lockdowns and restrictions in the country’s biggest port hubs and major cities.

Atul Vashistha, founder and chairman of supply chain consultancy Supply Wisdom, told CNBC: “While ports remain open, current restrictions — such as mandatory quarantines and testing — continue to slow shipments and cause delays.”

He added that China’s priority now is to limit the spread of coronavirus cases ahead of next month’s Winter Olympics and the upcoming Lunar New Year. However, the ensuing port restrictions have also caused some “chaos”.

“Products piled up and ships were barred from entering. Between negative requests for PCR tests and last-minute rescheduling, 2022 started like 2021 ended — chaos,” Vashistha, referring to Covid-19 test.

Major port cities such as Shenzhen, Tianjin and Ningbo, as well as the industrial hub of Xi’an, have reported cases, triggering lockdowns and other restrictions.

Other cities such as Dalian and Anyang have also reported infections.

Beijing reported its first locally transmitted omicron infection on January 15. On Sunday, less than two weeks before the Winter Olympics, Beijing authorities introduced new restrictions to contain the latest outbreak after nine cases of local transmission were detected in Beijing in a day. earlier.

The Ningbo outbreak in December also triggered some restrictions and disrupted traffic in Ningbo-Zhoushan, the world’s third-largest port.

Operations have largely resumed since then, but the diversion of cargo to Shanghai — the world’s busiest port — has also caused congestion and delays, Judah Levine, research director at freight booking platform Freightos Group, told CNBC.

Supply chain technology firm project44 said the move from Ningbo port to Shanghai “has backfired on some shippers” as congestion in Shanghai has increased. As a result, Shanghai’s air traffic, an industry term for a carrier’s decision to skip specific ports or entire voyages, rose 86 percent year-on-year.

Freightos’ Levine said in an email to CNBC last week that all eyes are on China and the impact that strict virus control measures may have on logistics. “Measures have been taken to curb the spread of positive cases detected in Beijing, Shenzhen, Tianjin, Dalian and other places,” he said on January 19.

Air freight rates rise

Seaborne spot rates on the Asia-to-U.S. West Coast route rose 4%, but they were unlikely to rise further as manufacturing was halted as the Lunar New Year holiday approached and factory shutdowns halted, Levine said. extension period.

However, he added that air cargo rates are still soaring.

“The pre-holiday rush and pandemic-constrained capacity are pushing up air freight rates as there is still plenty of time to move cargo by air,” he said, adding that the Freightos Airline Index showed freight rates from China to Northern Europe at $9.59 A kilogram in mid-January – up more than 50% from less than $6 a kilogram in early January.

Lunar New Year is China’s biggest holiday, and hundreds of millions of people traditionally return home from the cities where they work.

According to Vashistha, some major shipping lines, such as Ocean Network Express and Hapag-Lloyd, suspended services and operations even earlier than last year to celebrate the season. That strains already fragile supply chains, he said.

This latest shock comes at a bad time for global supply chains. They were already under pressure from the Christmas period and omicron variants, but the port issues in China have taken these complexities to a new level.

John Ferguson

Economist influence

S&P chief economist Paul Gruenwald said shipping costs have been falling over the past few months as supply chain backlogs have eased, but the recent surge in COVID-19 and any potential port closures will give any progress already made overshadowed. Global rating.

“I would say this will slow the improvement we’ve seen over the past few months,” he told CNBC’s “Squawk Box Asia” on Thursday.

The impact of zero epidemic in China on the Winter Olympics

John Ferguson, head of globalization, trade and finance at the think tank Economist Influence, said China’s zero tolerance for the coronavirus will have a major impact on global supply chains.

“The latest shocks come at a bad time for global supply chains. They were already under pressure from the Christmas period and omicron variants, but the port issues in China have taken these complexities to a new level,” Ferguson said.

“China’s zero-coronavirus strategy is key, as further outbreaks will lead to more closures or lockdowns in key areas,” he told CNBC. “China is unlikely to abandon its Covid strategy in 2022, given its upcoming Winter Olympics, and major political events later this year.”

One bright spot, he said, is that many companies are already preparing for a stressful supply chain scenario and are now making plans.

It won’t be smooth sailing, though.

“While global companies have become more nimble in this crisis, we should still expect some delays in the latest round of supply chain stress,” he added.

Supply Wisdom’s Vashistha concludes: “Combining the shutdown with Covid-induced increases in port backlogs, China’s zero-tolerance policy, and declining air capacity, the problem becomes more apparent: cargo continues to surge, unable to move it or where it’s going.”

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