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Crisis or hiccup? Assessing the logistics impact of China lockdowns

This article was written by Eric Kulisch for

A mixed bag of circumstances and time horizons are creating diverging narratives about whether shipping delays stemming from the shutdown of Shanghai and other Chinese cities are getting better or presage massive supply chain gridlock.

There is no sign that Shanghai’s lockdown is easing anytime soon. Footage on social media shows steel fences being installed on public roads and inside residential compounds to keep people from traveling to other districts and moving in neighborhoods. On Monday, the Shanghai Health Commission reported 2,472 new positive cases of COVID-19, up from 1,401 the previous day. Total daily case levels exceed 30,000. Fifty-two people died Monday of COVID, according to the China Daily.

While some cities in China, including Guangzhou are loosening COVID restrictions, rising COVID cases in Beijing are sparking fears the Chinese capital and other cities could join Shanghai, Suzhou and other major cities in lockdowns. Kunshan, a technology manufacturing hub west of Shanghai, has extended a lockdown, which began on April 2, to April 28. Several districts in Hangzhou, home to e-commerce giant Alibaba, began a lockdown on April 23, with mass testing being carried out for three days.

Based on current trends, China watchers say lockdowns won’t begin to ease until mid-May or possibly June as the government maintains its zero-COVID policy.

In some ways the logistics situation sounds manageable. The Port of Shanghai, the largest container shipping gateway in the world, has remained in operation. Wait times for export loadings are only about two days and the 12 days it takes to pick up an import box is below wait times for other COVID-related disruptions in China since 2020, as American Shipper reported Thursday. The daily number of vessels waiting for a berth has actually fallen since the lockdown began nearly four weeks ago and there is limited congestion from redirected cargo at other ports.

But snapshots of current throughput don’t measure how much deferred cargo is piling up in warehouses or will be churned out by factories working overtime to make up for lost time. A key reason cargo isn’t stacking up at the port is that the vast majority of truck drivers are restricted from freely moving around Shanghai and making deliveries at marine terminals.

Many logistics professionals remain concerned that a huge wave of cargo will be released once the lockdowns are lifted and swamp the handling capacity of local and overseas ports, compounding pressure on the traditional peak shipping season, according to logistics analysts. Shippers that haven’t placed orders yet could miss getting their goods in time for big shopping events such as back to school, Halloween and Christmas.

“Shipping is being very materially disrupted. In 2021, we calculated about six weeks were needed to recover/get back to normal flows for every week of shutdown. Given this effective shutdown is in its third week, we can expect three months or more before flows are restored to normal levels,” Michael Zimmerman, leader of the analytics practice for the Americas at consulting firm Kearney, told FreightWaves.

Shanghai’s industrial output fell 7.5% in March, the city’s statistics bureau said. Reduced manufacturing output and limited truck access to the port and airport have decreased air and ocean export volumes over the past month.

The slowdown in imports has prevented key raw materials from reaching manufacturers and many companies have either shut down or are operating at severely constrained levels.

Export-oriented businesses that rely on global sources for raw materials will not be able to fully recover until logistics networks increase their capacity. There is a high risk that many industrial, technology, and automotive companies with suppliers in Shanghai and Kunshan will have to halt operations due to component shortages, should the current lockdowns in both cities continue into the month of May, says Everstream Analytics, which uses artificial intelligence to help companies predict supply chain threats.

Factory shutdowns due to COVID are higher now in Shanghai than any comparable period in China. (Source: Everstream Analytics)

At least 11 Apple suppliers have been impacted by the lockdown, Everstream reported in an update. Foxconn, a key Apple supplier, halted production at plants in Shanghai and Kunshan.

Shanghai authorities last week gave 660 companies the green light to restart operations. But ongoing restrictions prevent many workers from reaching the plants and many are functioning with less than half their workforce, according to various reports. The plants must have workers staying in a closed bubble environment.

“Production will ramp up as imports increase and logistics services improve, but will not fully catch up until June or July,” said Andrea Huang, senior director of supply chain at Overhaul, a provider of supply chain visibility and risk management software, in an email.

While the Port of Shanghai continues to operate, port productivity has decreased 20% to 30% and some carriers are not calling the port. Shipping delays are impacting intra-Asia trade, as well as North America and Europe trade lanes, according to international logistics and trade finance companies monitoring the situation. When the Yantian terminal in Shenzhen went under quarantine a year ago productivity was slashed by 80%, but in that case the restrictions applied specifically to the port and not the city itself.

On Monday, Maersk announced a dozen blank sailings for its AE1 service to the Port of Ningbo, citing accumulating bottlenecks on its Asia-North Europe network. It is also rerouting cargo cargo where possible to mitigate delays and avoid bunching and adjusting barge and rail capacity to help off-set landside issues.

Several carriers are skipping Shanghai as a port of call until mid-May.

The Alliance (ONE, Hapag-Lloyd and Yang Ming) had canceled 36 voyages to Shanghai as of April 14, said Zimmerman. The lockdown has also led to significant shortages of 40-foot containers and diversion of 20-footers to other Chinese ports.

Many carriers, including Maersk, ONE, Hapag-Lloyd, Mediterranean Shipping Co. and CMA CGM, have suspended accepting new refrigerated and dangerous goods cargo to Shanghai, due to insufficient storage space at Shanghai’s port for such specialized containers. Maersk said it resumed booking dangerous goods at the Port of Shanghai on Friday as yard density begins to improve.

According to FreightWaves’ SONAR, ocean demand out of Chinese ports to the U.S. dropped 31% between April 6 and 15. Other factors, including lower consumer demand, could also be involved, experts say. Real U.S. retail sales are down from last year as inflation squeezes pocketbooks and people spend more on services.

FreightWaves SONAR shows ocean volume decline in recent weeks from Shanghai to California.

Ocean freight bookings from China to the U.S. are about the same as last year at this time, according to Customs data compiled by SONAR.

“If shippers are really nervous about not getting a lot of goods they should in theory be increasing their bookings” as they did after manufacturing shut down because of the Wuhan outbreak in 2020, said Luke Falesca, enterprise account director for SONAR on last week’s episode of #WithSONAR. “There’s not the same panic as when ports shut down in the past.”

Drewry Shipping Consultants reports container volumes from Shanghai to Los Angeles and Shanghai to New York are down 17% and 16%, respectively, since the beginning of the year.

Airport troubles

Freight shipments through airports arguably are being jammed more than at ports, but also are subject to rapidly shifting dynamics.

Since March, inbound airfreight has experienced 10 to 20 days delay due to airport customs closures in Shanghai and quarantine rules at other major airports. Outbound volumes have also declined. Once the lockdown eases, airfreight will pick up pace, with courier services taking a bit longer to recover, said Huang.

Delta Air Lines (NYSE: DAL) has extended its embargo on all imports and exports at Shanghai Pudong International Airport until May 6 due to the local COVID restrictions that forced the airline to cancel all flights to the city.

Many passenger and cargo airlines continue to cancel flights in and out of Shanghai. Cargolux, for example, stopped operating there until Monday.

Cargo terminals at Shanghai’s airport have suspended on-site X-ray security testing and testing service for chemical goods, according to a recent customer update from Crane Worldwide Logistics.

Air cargo diverted from Shanghai is disrupting freight operations at other Chinese airports, causing a shortage of pallets for exports, Chicago-based AIT Worldwide Logistics reported.

Meanwhile, Shenzhen International Airport imposed a daily import cap of 250 tons, including 125 tons for perishable and temperature-controlled cargo from April 21 to 27. During this period, the terminal won’t accept dangerous goods, loose cargo or cargo destined for Shanghai, the logistics provider said.

While air cargo operations are functioning at the Shenzhen and Guangzhou airports, shipping and logistics giant Maersk warned customers that lead times for reserving space on aircraft are now two to three weeks due to the increased volume diverted from Shanghai.

Import operations are suspended in Nanjing.

AIT Worldwide Logistics reports that Air China’s terminal is back to normal operations, but China Southern’s terminal remains closed at Guangzhou airport. In Qingdao, air imports must be stored in the terminal for 10 days following disinfection. Wuhan has a three- to four-day backlog of air cargo because truck deliveries are suspended to cities facing outbreaks. Tianjin, in north China, is also preventing truck movements to cities with rising case counts.

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