The global shipping industry, already exhausted by pandemic crises on top of inflationary pressures and delivery delays, is facing its biggest test of its resilience to date.
When one of China’s busiest ports announced it would not accept new export containers in late May due to an outbreak of Covid-19, it was supposed to be back in operation within days. But as the partial shutdown drags on, trade routes are further hampered and freight rates are rising.
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 Suez Canal blockade in March, it may take months for the cargo backlog in southern China to clear as the fallout spreads to ports around the world.
The situation in southern China is another “of the catastrophes we’ve seen plague the global supply chain,” according to Nerijus Poskus, vice president of ocean strategy and carrier development at Flexport Inc. which makes software that helps companies manage their supply chains.
He estimates that it will take six to eight weeks for congestion in Yantian to clear. That timing is a problem because it extends disruptions into the late summer period of peak demand from the U.S. and Europe, where retailers and other importers replenish warehouses ahead of the year-end shopping rush.
Ocean freight, normally cheap and invisible to businesses and consumers, now more expensive than ever, has become a double-edged threat to the global economy: by acting as a drag on trade and as a potential accelerator of inflation.
In the United States, Federal Reserve policymakers on Wednesday raised their inflation forecasts, in part because bottlenecks have formed as supply has failed to keep pace with demand.
Diversion of ships Even without the Suez blockade or port delays, the global shipping system would likely continue to struggle with peak capacity. Exports from China and other Asian countries are at record highs as the U.S. and European economies reopen and other markets, such as India, buy medical products to help with their current outbreaks.
China’s trade boom shows no signs of letting up, as exports were the third highest on record in May and the third and fourth quarters are usually the peak trading periods in a given year.
Some of the goods that couldn’t get out of China through Yantian were diverted to other nearby terminals, such as the one run by Guangzhou Port Co.
That has led to periodic delays there, though congestion has eased greatly, a worker who gave only Lin’s name said Thursday. Still, that hasn’t been enough to offset 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 further disruption to the current state of emergency makes the supply chain even more fragile,” he said. Anchor line There are currently 139 container ships at anchor off China’s coast, about 50% more than the mid-April to early May average.
Some goods have stopped shipping altogether. Chong Junxiong owns a clothing company called Genesis Group Pte Ltd. in Singapore, and contracts production to a manufacturer in Dongguan, near Shenzhen. Not only has its supplier shut down because of Covid, but it is unable to receive any deliveries, as shipments have also stopped.
“There are bottlenecks in ports around the world because of the Covid outbreaks: people are not going to work in the same numbers and are not working at the same speed as before the pandemic,” says Bjorn Hojgaard, CEO of Anglo-Eastern Univan Group, a company that manages the operations of a fleet of 700 ships worldwide, ranging from tankers to bulk carriers and container ships.