The chaos began last month when authorities in southern China’s Guangdong Province – home to some of the busiest container ports in the world – canceled flights, closed communities and suspended trade along the coast in an attempt to control a rapid surge in Covid-19 cases .
The infection rate has since improved and many operations have resumed.
But the damage is done. Yantian, a port about 80 kilometers north of Hong Kong, handles goods that would fill 36,000 20-foot containers every day. It was closed for almost a week late last month after infections were discovered among dock workers. Although the port has reopened, it is still below capacity, resulting in a huge backlog of containers and ships waiting to dock.
The congestion in Yantian has spread to other container ports in Guangdong, including Shekou, Chiwan and Nansha. All are located in either Shenzhen or Guangzhou, the fourth and fifth largest comprehensive container ports in the world. The domino effect poses a huge problem for the shipping industry worldwide.
The Yantian backwater “adds an additional disruption to an already stressed global supply chain, including the significant stretch of sea,” said Peter Sand, senior shipping analyst at Bimco. an association of shipowners. People “may not find everything they’re looking for on shelves when they shop for Christmas gifts later in the year,” he added.
According to refinitive. More than 50 container ships were waiting to dock in Guangdong’s outer Pearl River Delta on Thursday Data. This is the biggest backlog since 2019.
Yantian port operations have recovered to about 70% of normal levels. However, it is not expected to return to full capacity until the end of June.
Increasing shipping costs
The congestion in southern China has resulted in large shipping companies warning customers of delays, changes to shipping routes and destinations, and fee spikes.
The company said it would reroute some carriers to alternate ports, but that won’t necessarily solve the problem. Maersk warned that waiting time in places like other ports in Shenzhen, Guangzhou and Hong Kong could increase as more ships come in.
It’s a global trend. According to London-based Drewry Shipping, prices for eight major east-west routes have increased over the same period a year ago. The biggest jump in price was on the Shanghai to Rotterdam route in the Netherlands, which rose 534% year over year to over $ 11,000 for a 40-foot container.
Average container freight rates from China to Europe recently hit $ 11,352.33, the highest since at least 2017, according to Refinitiv.
The crisis in Guangdong exacerbates the strain on an already stretched one global Industry.
In the United States, for example, large ports along the California coast are already clogged with container ships, adding to the bottleneck on the California coast largest trade gateway with Asia.
“If anything, it could take months to clean up the backlog initiated after the congestion at the Yantian terminal, as the start of high season means demand will only continue to rise,” he said.
A delicate balance
The crisis in Guangdong shows how fragile the global supply chain is is after Pawan Joshi, executive vice president at E2open, a Texas-based supplier of supply chain software.
“There’s no room for mistakes or unexpected events – everything gets squeezed out,” he said. “You can’t afford to make a single mistake because there is no longer any buffer.”
The pandemic wreaked havoc last year as lockdowns temporarily closed factories and disrupted the normal flow of trade. As economies come back to life, suppliers have been overwhelmed by a pickup in manufacturing and additional consumer demand.
But this increase in demand collides with almost unchanged capacities in container shipping. The reduced global air cargo capacity due to the collapse of long-haul aviation has made matters worse.
“Given the continued strong demand for shipping around the world, we will continue to experience restricted shipping with above-average rates and more than ordinary cargo handling,” said Joshi, referring to shipments that need to be booked on a future voyage because they are not on the original one Ship can be loaded.
Demand is likely to shift a bit as countries relax Covid-19 restrictions and people return to spending less on appliances and other products and more on outdoor experiences. But the constraints in the global supply chain are unlikely to go away anytime soon.
“Recently, we’ve seen widespread fatigue in the global supply chain, adding to existing challenges,” said Bimco’s Sand, adding that the stresses are likely to continue for “up to a year”.