Shipping

The mother of all bottlenecks

Covid outbreak in Guangdong sees freight rates surge as vessels idle

HK-Containers-w

Yantian port: all clogged up

The shipping industry has spent the last 18 months in crisis mode because of the pandemic, made worse by an accidental blockage of the Suez Canal in March that held up more than $50 billion in trade.

Yet problems at one of the world’s busiest container ports in China are creating even more disruption in terms of delays to schedules and the number of containers affected. The impact is being felt just as fiercely in freight rates, which have climbed to new records, especially for voyages out of China.

The epicentre of the crisis is Shenzhen’s main port in Yantian, which processes about a quarter of China’s goods trade with the United States. A flare-up in Covid-19 infections in nearby cities is being blamed, with the container terminal handling about a fifth of its normal throughput at the beginning of June because of disinfection procedures and quarantine measures.

The result: at least 50 vessels are waiting at anchor in nearby waters, with the major shipping lines reporting delays to collection of cargoes of as much as 16 days. Shipping news specialist Splash reports that more than 600,000 TEU of containers have been impacted. Putting the number in context it says “the Yantian partial shutdown is close to affecting twice as many containers as were hit when the Suez Canal was closed for six days”.

The lines have tried to shift some of their calls to smaller terminals in neighbouring Shekou and Nansha but they have struggled to handle the additional demand. Yantian’s western zone has now resumed operations after a shutdown, getting productivity back to about 70% of the standard rate. Yet quarantine protocols continue to create congestion and port operators must also contend with the practical challenges of finding space for a pile-up of containers waiting for export.

When business begins to return to normal the impact will be felt at destination ports around the world. Some of the key arrival points for Chinese goods are already clogged up, however, with handling facilities struggling to keep up with the recovery in international trade. There were more than 300 containerships waiting for berths around the world at the end of last week, according to Splash.

Pressure on ports on the west coast of the US has been particularly intense. The port of Los Angeles – the largest in the US by volume – has been battling to reduce queues of waiting ships since the end of last year, despite breaking its cargo record in six of the last nine months, as of April. It is now set for another surge in inbound traffic as the Chinese ports clear their backlog. These hold-ups, however, will trigger a new round of scheduling challenges as shipping lines rush to get their vessels back to China’s export zones. Knowing they can get higher freight rates for shipments out of China, many of these giant vessels aren’t waiting to load a full complement of empty containers (or exports) in the US, steaming back half-full or less. This is exacerbating another problem: a shortage of containers at the Chinese end.

This imbalance is forcing freight rates higher. Prices to send a 40-foot container from Shanghai to Rotterdam have already reached record levels of more than $10,500, nearly five and a half times the seasonal average over the last five years, according to Drewry Shipping.

The strain is being felt in supply chains. “The longer operations in Yantian are restricted, the worse the delays will become and the more the need to find alternative routes, particularly with the peak pre-Christmas season coming and supply chains already stretched to breaking point,” says Tim Huxley, chairman of Hong Kong’s Mandarin Shipping, and a longtime reader of WiC. “Coming after the crisis in Suez, this is just the latest blow to a stretched industry and it might be the end of ‘just in time’ inventories and a return to warehousing being a good investment. One thing is for sure, costs will rise and this will have to get passed down the supply chain along with these delays”.


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