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Friday, August 12, 2022

How Lockdowns in China Are Impacting Shipping

So far, 2022 has been another year of supply chain uncertainty. Inflation, new spikes in COVID-19 cases, and the Russia-Ukraine conflict have all impacted the movement of goods, slowing the supply chain recovery experts had hoped to see.

The latest curveball has come from recently reinstated lockdowns in China – particularly Shanghai, a critical manufacturing and port city that some experts view as the Chinese equivalent of New York City. From factory closures to understaffed ports, we’re seeing global ripple effects in the supply chain. Let’s dive into why the lockdowns are creating issues, and what to expect in the United States.

Port slowdowns

Under its zero-tolerance COVID policy, China has reinstated lockdowns in multiple cities. The list includes Shanghai, which is home to the largest port in the world, and Guangzhou, the fourth-largest port in the world. While the port has continued operating (and wait times have been shorter than they were during the lockdowns in 2020), productivity has decreased 20% to 30%. As it takes around 30 days to feel the impact of the drop here in the US, we expect to see the slowdown arrive in early May. “Shipping is being very materially disrupted. In 2021, we calculated about six weeks were needed to recover / get back to normal flows for each week of shutdown. Given this effective shutdown is in its third week, we can expect three months or more before flows are restored to normal levels, ”Michael Zimmerman, leader of the analytics practice for the Americas at consulting firm Kearney, told FreightWaves.

Factory closures

Chinese factories are closing as workers are forced to stay home, and the production of vital goods – including car parts, electronics, construction equipment, and biopharmaceutical products – has slowed significantly. As of April 30, China’s manufacturing activity was at its lowest level since February 2020. The impact on car parts manufacturing has been particularly problematic, as shortages were already widespread (and were already compounded by the closure of plants in Ukraine).

Impacts to expect in the United States

How will these supply chain issues affect the movement of goods into the United States? Here are the key impacts we expect to see:

  • Continued container shortages – Roughly 20% of the world’s nine thousand active container ships are currently sitting in traffic jams outside of congested ports, and around 30% of those are in China. This will contribute to the ongoing container shortage.
  • More port congestion – When lockdowns in China are lifted, US ports will likely be swamped with goods from newly reopened factories, leading to higher freight rates and increased congestion. Worse, this will likely occur during the peak shipping season.
  • Airfreight challenges – We’ve seen delays for airfreight due to quarantine rules and longer lead times. Increased airfreight volumes are being diverted from Shanghai, so the demand for space is high.
  • Product shortages – Thanks to factory closures, companies around the world that rely on Chinese goods and materials are experiencing shortages that impede production lines. By the time peak shipping season comes around, a variety of products are likely to be in short supply.
  • General instability and uncertainty – Materials shortages will force companies to look for alternative suppliers in new regions, which means shipping timelines and freight rates will be unstable in the coming months. As an additional complication, shipping companies are likely to reduce capacity in response to the drop in demand as imports from China slow, which may drive rates up.

Preparing for continued disruption

Nothing is set in stone, and 2022 may have even more supply chain surprises in store. It’s important to be prepared for anything, especially as peak shipping season approaches. While the impacts of lockdowns in China will be felt throughout the shipping industry, a 3PL partner like GlobeCon can help you navigate an uncertain supply chain climate by combining experience, technology, and capacity to get your cargo where it needs to be faster. We provide a number of services at the Port of LA and Long Beach, including portside warehousing, freight forwarding, intermodal drayage support, and more. We’re your trusted partner at the port.

Connect with a leading technology partner at the Ports of LA and Long Beach. Contact us.

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