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Home Industry Verticals Logistics & Transportation

Zero COVID lockdowns bad for China’s supply chain

FutureCIO Editors by FutureCIO Editors
March 18, 2022
Photo by Pixabay from Pexels

Photo by Pixabay from Pexels

After two weeks since Russia’s invasion of Ukraine, there seems to be a negligible impact on the container prices and leasing rates in China. Container availability has improved soon after the Chinese New Year until Friday across key ports in China.

However, with the announcement of nationwide lockdowns, the supply chain must prepare for another turmoil in the coming months, impeding the flow of container movement as importers worldwide prepare for the coming peak season later this year.

At the port of Ningbo, average prices for a 40 feet high cube container fell by 10% approximately from US$5930 on 14 February to US$5329 on 27 February. As of 10 March, these prices stood at US$5248. Similarly, average prices fell by 10-15% at the ports of Shanghai, Qingdao and Shenzhen till 11 March. Shenzhen witnessed a drop of 8% in the past two weeks. 

However, the lockdowns in Shenzhen, Zhejiang, Shanghai, Jilin, Suzhou, Guangzhou and Beijing (19 provinces as of Sunday, probably more to come in a few days) imposed now will restrict container movement at these ports which will prove to be further damaging for the global supply chain.

Nothing to cheer about

2022 has not brought any cheer to the supply chain industry. On top of this, war will just prove to be another disruption amongst the other innumerable factors for China’s supply chain.

Johannes Schlingmeier

Johannes Schlingmeier, co-founder and CEO, Container xChange noted that freight rates and container prices were already at a record high even before the invasion started and what happened immediately due to the war is that the Russian ports were not being called by the national shipping lines anymore, the black sea being somehow closed, and the Asia European railway being quite hit by this.

He opined that the immediate impact of this on the overall supply chain has not started to show up.

“Not ignoring the fact that the Russian importance on global trade is not big enough for the containerised cargo to really disrupt the supply chains. We see on the other side, the container prices at record highs, containers piling up and a massive shortage as well. This is a result of many more other disruptions over the past two years since the pandemic started,” he continued.

He predicts that lockdowns in China will further reduce capacity and cause a surge in already inflated shipping prices. The shockwaves will be felt across the US and America, and almost everywhere in the world.

Prices unaffected

The impact on container prices is limited. The average prices of containers have declined by an average of 10-15% since February for 20 feet dry containers. The average prices for 40 feet high cube containers have increased slightly at the port of Shanghai while declining at Ningbo and Qingdao since January up until the second week of March (see charts below).

In the immediate future, the closure of the Asia- European railway (which only accounts for roughly 2.5% of Asia-Europe cargo) will cause the high-value cargo to be pushed to ocean freight which is already low in capacity. This will put more pressure on the already struggling supply chain. Adding on top of this, China’s lockdowns will be nothing less than a major shockwave to an already crippled supply chain.

If industry reports are to be believed, China could emerge as a buyer for Russian crude which could help alleviate some of the current global supply concerns as the EU could in turn buy more from the Middle East. With the COVID outbreaks and subsequent lockdowns, this expected surge in trade will slow down at least for some weeks/months.

Furthermore, there are midterm and long-term implications that analysts foresee, such as disruption in the trade of goods and increased U.S. efforts to insulate itself from geopolitical shocks to international supply chains fuelled by key sectors of the Chinese economy.

Lockdowns to drive up inbound containers in China

The CAx (Container availability index) for two of China's major ports (Shanghai and Ningbo) is expected to increase further at a rather fast pace from around the 0.6 mark in the second week of March, meaning more inbound containers than outbound.

This is unusual behaviour for China given that it tends to export more than it imports. This exhibits the persisting bottlenecks of China’s trade routes and the bottlenecks that will inevitably emerge from these lockdowns.

Related:  3 ways HR leaders connect when onboarding newbies
Tags: Container xChangeCOVID-19supply chain
FutureCIO Editors

FutureCIO Editors

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