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China’s Covid incident increases shipping costs and delays products

On September 14, 2019, shipping containers from China and other Asian countries will be unloaded at the Port of Los Angeles as the US-China trade war continues in Long Beach, California.

Mark Ralston | AFP | Getty Images

First, there was a serious shortage of shipping containers due to the pandemic. Later, a large blockage occurred on the Suez Canal.

Today, businesses and consumers are preparing for yet another shipping crisis as port services are disrupted, delivery is delayed, and costs are rising again due to a virus outbreak in southern China.

In Guangdong Province, China, the number of cases of Covid-19 is increasing rapidly. Authorities have moved to shut down districts and businesses to prevent the virus from spreading rapidly.

According to analysts and shipping industry insiders, this has caused significant shipping delays at major ports in China and has already pushed up high shipping costs as wait times in berths have “rapidly increased”.

“The turmoil in Shenzhen and Guangzhou is absolutely huge, and that alone will have an unprecedented impact on the supply chain,” Brian Glick, founder and CEO of supply chain integration platform Chain.io, told CNBC. It was.

But, coupled with the challenges facing global supply chains since this year, shipping is in “totally unknown waters,” Glick said.

Guangdong Province, a major shipping hub, accounts for about 24% of China’s total exports. According to the World Shipping Council, there are Port of Shenzhen and Port of Guangzhou, which are the third largest and fifth largest ports in the world in terms of container volume.

The first local case of the delta mutant, first detected in India, was discovered in Guangzhou in May and has since surged to more than 100 cases. Authorities have imposed blockages and other measures to limit processing capacity at ports.

Global supply chain at risk again

As different parts of the world recovered from the pandemic at the end of last year, a buying boom broke out and there was a significant shortage of containers. As a result, shipments of goods from China to Europe and the United States were significantly delayed, and prices for businesses and consumers rose.

Later, one of the world’s largest container ships, Evergiven, was stranded on the Suez Canal, blocking major trade routes for nearly a week. About 12% of world trade passes through the Suez Canal. An average of more than 50 vessels pass through the Suez Canal each day.

The incident caused a global shipping crisis and supported $ 9 billion in international trade per day.

Today, the recent crisis in southern China is once again disrupting the global supply chain.

Shipping is the highest ever … we’ve broke so many price caps that no one can tell where this peaks.

Brian Glick

Founder and CEO of Chain.io

“I think the risk of supply chain disruption is increasing and export prices / transportation costs are likely to rise further,” said Chang Ji Wei, chief economist at Pinpoint Asset Management. Guangdong is global. It plays an important role in the supply chain. “

JP Wiggins, vice president of corporate development for shipping software company 3GTMS, told CNBC that the Chinese port crisis would cause even greater disruption to US consumers, as many of the affected shipments are destined for North America. In comparison, the blockade of Suez had a major impact on European trade, as many of the delivery delays were directed to Europe.

Wiggins also said consumer expectations need to stay in “covid mode.”

“We anticipate a shortage and out of stock of all products made in Asia,” he explained.

Shipping is “the highest ever”

The surge in transportation costs was a direct impact of the crisis.

“Many small and medium-sized shippers are raising their hands because shipping costs exceed the margins of the products they are moving,” Glick said. “Transport costs are the highest ever, and anecdotal quotes come in at 5-10 times historical standards. We’ve broken so many price caps, so where does this peak? I can’t tell anyone. “

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Mr Wiggins warned that prices were “big fluctuating” and advised shippers to plan double spending because they didn’t know where this was heading.

Shehrina Kamal, vice president of intelligence solutions at Everstream Analytics, said shipping costs will increase further as shippers who cannot tolerate delays are increasingly demanding the conversion of sea freight to air freight.

Spillover effect

According to Kamal, the waiting time for vessels moored at the Yantian International Mansion Terminal in Shenzhen “surged” from the average waiting time of 0.5 to 16 days.

The backlog has a combined effect on other ports.

The problem has already accumulated in nearby ports as carriers are beginning to detour, Kamal said. Guangzhou’s Nansha Port is experiencing cargo inflows due to detours, and congestion and vessel delays are expected to continue for another two weeks-she said, if not more.

Coupled with a pandemic in the Indian and Southeast Asian economies … This increase in Covid cases in Guangdong could contribute to higher inflationary pressures in other countries.

Zhang Zhiwei

Chief Economist, Pinpoint Asset Management

According to Kamal, the knock-on effect will be passed on to neighboring states such as Guangxi, Yunnan, Hunan and Hubei.

Inflation concerns

Besides mainland China, the ports of Hong Kong’s financial centers are also affected.

Cross-border delivery was possible by truck, but authorities have recently stepped up measures for a pandemic. This means that all cross-border trucks need to be sterilized, among other measures, which is likely to delay the overall movement and processing of cargo, Kamal said.

Overall, Guangdong port sales remained late in June, and even in other parts of China, it is likely to be more cautious, said Zhang of Pinpoint Asset Management.

Even if investors are worried about rising inflation and what that means for interest rates, it can lead to higher prices.

“Coupled with the pandemic of the Indian and Southeast Asian economies … rising commodity and shipping costs, this rise in the Covid case in Guangdong may contribute to higher inflationary pressures in other countries,” he warned.

China’s Covid incident increases shipping costs and delays products

Source link China’s Covid incident increases shipping costs and delays products

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