China’s Worse-Than-Suez
Ship Delays Set to Widen Trade Chaos
Bloomberg News
June 17, 2021, 11:57 AM GMT+1 Updated on June 18, 2021, 1:33
AM GMT+1
Covid outbreak in
Yantian export terminals slow ship loading
Disruptions to
stretch into peak season for retail stockpiling
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The global shipping industry, already exhausted by pandemic
shocks that are adding to inflation pressures and delivery delays, faces the
biggest test of its stamina yet.
When
one of China’s busiest ports announced it wouldn’t accept new export containers
in late-May because of a Covid-19 outbreak, it was supposed to be up and
running again in a few days. But as the partial shutdown drags on, it’s further
snarling trade routes and lifting record freight prices even higher.
Yantian Port now says it will be back to normal by the end
of June, but just as it took several weeks for ship schedules and supply chains
to recover from the vessel blocking the Suez Canal in March, it may take
months for the cargo backlog in southern China to clear while the fallout
ripples to ports worldwide.
“The trend is worrying, and unceasing congestion is becoming
a global problem,” A.P.
Moller-Maersk A/S, the world’s No. 1 container carrier, said in a statement
Thursday.
Map
Anchored container ships, as of June 17, heatmapped in yellow
The situation in South China is another “in a string of
disasters we’ve seen plague the global supply chain,” according to Nerijus
Poskus, vice president of ocean strategy and carrier development for Flexport
Inc., which makes software that helps companies manage their supply chains.
He estimated the congestion in Yantian will take six to
eight weeks to clear.
That timetable is a problem because it extends the
disruptions into the late-summer period of peak demand from the U.S. and
Europe, where retailers and other importers restock warehouses ahead of the
year-end holiday shopping rush.
Usually cheap and invisible to companies and consumers,
ocean freight that’s now more expensive than ever has become a double-edged
threat to the world economy: by acting as both a drag on commerce and a potential accelerant for inflation. In the U.S. on Wednesday, Federal Reserve
policy makers raised their inflation forecasts partly because bottlenecks have
formed as supply fails to keep pace with demand.
Drewry Shipping data released Thursday showed no let-up as
container rates on several routes kept climbing, including an increase to $11,196
for a 40-foot box to Rotterdam from Shanghai. That’s a nearly seven-fold increase from a year ago.
Ships Diverted
While the situation at the Chinese port is improving, on
Wednesday there was still an average waiting time of 16 days, according
to a separate statement from Copenhagen-based Maersk, which is diverting most
of its ships elsewhere in June.
But the rerouting by Maersk and other companies will likely
only add to the congestion and delays at nearby ports, the statement said.
Out-of-Control Shipping Costs Fire Up Prices From Coffee to
Toys
Some retailers in the U.S. have started informing customers
looking to buy new furniture made in
China that delivery could take as long as 10 months even if they
place an order now, according to Steve Kranig, director of logistics at IM-EX
Global Inc. The port congestion in Guangzhou and Shenzhen has also affected
assemblers in Southeast Asia, who import raw materials to make armchairs and
tables for export to the U.S., he said.
“I would expect more
delays to come because soon they will compete with cargo that is for the
upcoming Christmas season. Since inventories are so low, I expect big
retailers to try and ramp up so they can have products to sell in time for the
holidays,” Kranig said.
Maxed-out Capacity
Even without the Suez blockage or port backlogs, the global
transportation system would probably still be struggling with maxed-out capacity. Exports from
China and other Asian nations are at record highs, as U.S. and European
economies reopen and other markets such as India buy medical goods to help with
their ongoing outbreaks.
China’s trade boom shows no sign of letting up, with exports
the third-largest on record in May and the third and fourth quarters
usually the biggest periods for trade in any given year.
Strong Sea Trade
Cross-Pacific trade still at historically high levels
Source: China's Ministry of Transport, Port of Los Angeles
“There are still a number of problem spots that will pose
challenges to global trade and logistics activities in the second half of
2021,” according to Nick Marro, lead analyst for global trade at the Economist
Intelligence Unit in Hong Kong. “The biggest risk will be recurring Covid-19 outbreaks, which we can probably see as
inevitable owing to the new variants, but this will also include mismatched supply and demand for
container space and existing logistical bottlenecks in major Western ports.”
Some of the goods that couldn’t leave China through Yantian
were diverted to other nearby terminals, such as the one run by Guangzhou Port
Co. That’s caused periodic delays there, although the congestion has eased a
lot, a worker who only gave a family name of Lin said Thursday.
Even so, that’s not been enough to make up for the
disruptions at Yantian, which may
have affected the equivalent of about 1 million 20-foot containers so
far, according to Peter Sand, chief shipping analyst at Bimco. Yantian handles
about 13 million a year.
“Adding another disruption on top of the current state of
emergency is obviously making a stretched supply chain even more fragile,” he
said.
Anchor Line
There are currently 139 container vessels anchored off the
coast of China, about 50% more than the average from mid-April to early May,
according to Bloomberg analysis of vessel data.
Some goods have
stopped shipping altogether. Chong Junxiong owns a clothing firm called
Genesis Group Pte. Ltd. in Singapore, and contracts production to a
manufacturer in Dongguan, near Shenzhen. Not only has his supplier been
shuttered due to Covid, but he can’t get any deliveries as shipments have also
halted.
“There are bottlenecks in ports all over the world because
of Covid outbreaks -- people are not going to work in the same numbers and
aren’t working at the same speed as they did before the pandemic,” says
Bjorn Hojgaard, CEO of Anglo-Eastern Univan Group, a company that manages
operations for a fleet of 700 ships globally, including everything from tankers
to bulk to container ships.
“It’s taking longer for shipping to recover than what was
expected a few months ago, but I’m hopeful that going into the fourth
quarter in 2021 and the first quarter in 2022 we will see the resumption of
activity in many parts of the global economy and certainly a normalization of
some of the challenges we face in shipping.”
— With assistance by Ann Koh, Ailing Tan, Brendan Murray,
Kevin Varley, Shuping Niu, Christian Wienberg, and Alaric Nightingale
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