China Covid instances trigger larger transport prices, delayed items
Sea containers from China and other Asian countries will be unloaded at the Port of Los Angeles on September 14, 2019 in Long Beach, California, as the trade war between China and the United States continues.
Mark Ralston | AFP | Getty Images
First, it was a critical shortage of shipping containers due to the pandemic. Then there was a massive blockade in the Suez Canal.
Now businesses and consumers are preparing for another shipping crisis as a virus outbreak in southern China disrupts port services and delays deliveries, driving costs up again.
China’s Guangdong Province is facing a sudden surge in Covid-19 cases. Authorities have closed districts and businesses to prevent the virus from spreading rapidly.
This leads to massive shipping delays in large Chinese ports and drives up the already high shipping costs, as the waiting times at the berth “skyrocketed” according to analysts and representatives of the shipping industry.
“The disruptions in Shenzhen and Guangzhou are absolutely massive. Alone they would have an unprecedented impact on the supply chain, ”Brian Glick, founder and CEO of the supply chain integration platform Chain.io, told CNBC.
Together with the challenges that the global supply chain has been facing since this year, shipping is in “absolutely uncharted waters,” said Glick.
Guangdong, a major shipping hub, accounts for about 24% of China’s total exports. It is also home to the Port of Shenzhen and the Port of Guangzhou, which are the third largest and fifth largest in the world by container volume, according to the World Shipping Council.
The first local case of the Delta variant, first discovered in India, was found in Guangzhou in May and has since increased to over 100 cases. The authorities have imposed bans and other measures that limit the processing capacity in the ports.
Global supply chain at risk again
When various parts of the world recovered from the pandemic late last year, there was a buying boom that resulted in containers being critically undercut. This caused massive delays in shipping goods from China to Europe and the US, and drove up prices for businesses and consumers.
Then one of the largest container ships in the world, the Ever Given, got stuck in the Suez Canal and blocked the important trade route for almost a week. Around 12% of world trade is transacted via the Suez Canal, which an average of more than 50 ships pass through each day.
The incident sparked a global shipping crisis and kept $ 9 billion a day in international trade.
Now the recent crisis in southern China is again disrupting the global supply chain.
Shipping costs are at an all-time high … we’ve broken so many price caps that no one can say where that peak will be.
Founder and CEO, Chain.io
“I think the risk of a supply chain disruption increases and export prices / shipping costs are likely to continue to increase. Guangdong Province plays a critical role in the global supply chain, ”said Zhang Zhiwei, chief economist at Pinpoint Asset Management.
JP Wiggins, vice president of corporate development for shipping software company 3GTMS, told CNBC that the port crisis in China will cause much more disruption for the American consumer as many of the shipments affected are destined for North America. In comparison, the Suez Blockade had a greater impact on European trade as many of the late deliveries were destined for Europe.
Wiggins also said that consumer expectations must remain in “Covid mode”.
“Expect shortages and sell-out of all products made in Asia,” he said.
Shipping costs ‘at all time high’
The increasing shipping costs are a direct result of the crisis.
“Many small and medium-sized shippers throw their hands up because shipping costs exceed the margins of the products they want to ship,” said Glick. “Shipping costs are at an all-time high with anecdotal quotes hitting 5 to 10 times the historical norm. We have broken so many price caps that no one can say where this will peak.”
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Wiggins warned that prices are “volatile” and said he advises shippers to spend twice as much as it is unclear where this is going.
Shippers who cannot afford the delays will increasingly try to convert ocean shipments to air, which will further increase shipping costs, said Shehrina Kamal, vice president of intelligence solutions at Everstream Analytics.
Waiting times for ships docking at the Yantian International Container Terminal in Shenzhen have “skyrocketed” from an average waiting time of 0.5 days to 16 days, according to Kamal.
The backlog will exacerbate other ports.
The problem is already worsening in nearby ports as airlines begin diversion, Kamal said. The port of Nansha in Guangzhou is experiencing an influx of cargo due to the diversions, and the congestion and ship delays are expected to last for another two weeks – if not longer, she said.
Coupled with the pandemic in India and the Southeast Asian economies … this surge in Covid cases in Guangdong could add to higher inflationary pressures in other countries.
Chief Economist, Pinpoint Asset Management
According to Kamal, the consequences will even spread to neighboring provinces such as Guangxi, Yunnan, Hunan and Hubei.
Fears of inflation
In addition to mainland China, the port at the Hong Kong financial center is also affected.
Cross-border delivery was possible there by truck, but the authorities recently tightened the measures due to the pandemic. That means, among other things, all cross-border trucks will need to be sterilized, which is likely to delay freight traffic and processing overall, Kamal said.
Overall, transshipment at the ports in Guangdong will remain slow in June and other parts of China will likely become more cautious, said Zhang of Pinpoint Asset Management.
This could lead to higher prices, although investors are concerned about rising inflation and the potential impact on interest rates.
“Coupled with the pandemic in India and the Southeast Asian economies … with rising raw material and shipping costs, this surge in Covid cases in Guangdong may add to higher inflationary pressures in other countries,” he warned.