Pandemic leaves Chinese ports clogged - 2022

Though the two-year-old Covid pandemic is the root cause for congestion at Chinese ports, its ripple effects and other contributing factors include unforeseen shocks, massive e-commerce demand in the United States of America (USA) and other countries and China’s zero Covid policy among others.

Congestion at Chinese ports

As in the US, the situation is no different in China, global shipping and container powerhouse, where its Ningbo port, the world’s third busiest, is massively disrupted by the airborne scourge.

According to Lloyd’s List, a 300-year-old shipping news organization, Ningbo port is struggling to maintain its normal operation levels due to Covid disruptions. Following 26 infections in Ningbo’s Beilun district on New Year day, most of them from Shenzhou International clothing company, the city imposed lockdown measures to contain the spread.

The port area is off-limits for trucks while roadblocks and lockdown measures compelled some container freight stations to shut operations in a city that is home to a good number of large container terminals. In the first week of January, only 6,000 truck drivers among 20,000 were issued passes to enter and exit the port through five pre-defined routes, leading to imminent shipment delays.

Besides these some truck drivers from lockdown zones are not in a position to apply for port passes while some are scared to venture into Covid affected Beilun district and its terminals as there is a possibility of quarantine requirements being clamped down in other cities as well.

As highlighted by Lloyd’s List, trucking capacity continues to suffer short supply even by January 7 at Ningbo owing to these reasons, including non-local drivers avoiding the port because of strict Covid restrictions.

Another round of Covid positive cases forced the authorities to enforce restrictions on more than 20,000 truck drivers serving the Ningbo port. Further to the trucking crisis in this region, pilots are also in short supply as infections surfaced in a few more cities by the Yangtze River.

Container storage and trucking firm Ningbo National Logistics stated it cannot carry out normal operations because of blocked roads. As per the shipping news major, nearly 120 ships carrying 6.3 lakh twenty-foot equivalent units (TEU) were anchoring off the two ports of Shanghai and Ningbo – Zhoushan by January 4, levels greater than what was witnessed in mid-August 2020 when a major terminal in Ningbo’s Meishan Island was shut for many weeks due to dock workers testing Coronavirus positive.

Shipping giant Maersk has confirmed in a trade advisory that there are strict controls on trucks moving goods to and from Beilun district in Ningbo after Covid outbreaks. Following the suspension of trucking services in many parts of East China’s Zhejiang province, transportation of manufactured goods and commodities via one of the world’s most vital ports slowed down.

Ningbo port is a vital cog in the global supply chain, connecting several factories in East China to electronic, automobile, machine, toys and other merchandise consumers in the US, Europe and several other countries.

However, Jiang Yipeng, a senior executive at Ningbo – Zhoushan Port noted that they making efforts to rise up to the challenge for a port that had handled more than 30 million TEU in 2021. More than 5,300 workers at the port, which handled 97,000 TEU between January 1 and 3 are also undergoing swab tests every couple of days.

Yipeng said a whitelist system has been set up to quicken approvals for truck drivers while more number of rail or barge services have also been arranged to smoothen cargo flow. Other solutions included shifting some short sea services to nearby harbours such as Jiaxing and Wenzhou to ease the jam.

Unforeseen shocks

Charles Armstrong, founding partner of Orion Advisors Group observed that carriers and shippers have experienced congestion at ports and inland points in the past as well but 2020 was unique as it brought several unplanned events.

Armstrong said production shutdowns in Asia, Suez Canal blockade by an Evergreen container ship and temporary closure of Yantian port in China because of coronavirus pandemic threw the entire shipping ecosystem out of balance and catapulted the problem to another level altogether.

The resultant impact is nearly three weeks of waiting period for container ships off Southern California, a duration equal to the journey from Asia to the West Coast in the US, which also means stretched lead times and loss of shipping capacity out of the network.

Moreover, the vessels are not returning to Asia in time to stack containers for the next voyage, affecting intermodal transfer and warehouses, including shortage of containers, trailers and chassis.

Massive e-commerce demand

According to the Guardian daily, Coronavirus pandemic triggered a massive online buying boom in the US, leading to the supply chain crisis as most of these goods are imported from China. Peak consumer sales, slowdown in transportation hubs and worker shortage acutely aggravated the supply chain crisis, resulting in highly clogged dockyards.

According to the Guardian daily, Coronavirus pandemic triggered a massive online buying boom in the US, leading to the supply chain crisis as most of these goods are imported from China. Peak consumer sales, slowdown in transportation hubs and worker shortage acutely aggravated the supply chain crisis, resulting in highly clogged dockyards.

To understand the scale of demand, we should take note of the record 10 million containers handling feat achieved by the Los Angeles port by June 2021 in a 12-month period, the first port to do so in the Western Hemisphere.

Mostly confined to homes because of the virus, many Americans deprived of access to services turned to buy goods online, a significantly higher number of goods and thereby putting pressure on the supply chains to deliver their orders as soon as possible.

According to Edward Renwick, vice president, Los Angeles board of harbour commissioners, Americans are now buying 20 – 25 percent higher number of boxes from China, even as the normal statistic was in the range of 2 – 4 percent.

Facing unprecedented rush, the port complex is working with the American government to find solutions to congestion, some of which include stretching work hours, nudging companies to clear empty containers faster and also adding additional storage space.

Meanwhile, agricultural economists from the University of California, Davis (UC Davis) and the University of Connecticut (UConn) estimated that a 17 percent value decline occurred in containerized agricultural exports from California state between May and September 2021 because of port congestion in their study.

This amounted to $2.1 billion in lost foreign sales, exceeding the losses incurred during the 2018 US-China trade war under Donald Trump. Most importantly, the agronomists found out that increased US demand for imported goods led to the rise of empty containers demand in Asia.

Underscoring how badly the pandemic affected shipping costs, the study observed that freight rates for shipping containers from Shanghai to Los Angeles were already higher which got further inflated by six-fold, costing $12,000 by September 2021.

Contrastingly, this was not the same cost for return shipping from Los Angeles to Shanghai, just $1,400. Considering this disparity, the high freight rates for containers going out from Asia to the USA and humongous volumes of imported goods arriving at American ports, the shipping lines found it lucrative to return containers empty from California ports to Asia than waiting it out at those American ports.

According to Xiting Zhuang, a doctoral student at UConn’s Department of Agricultural and Resource Economics, as many as 80 percent of all the containers departing Californian ports by September 2021 were empty. Stuffed containers returning from California fell by 43 percent from their usual numbers prior to the pandemic.

China’s zero Covid policy

China’s southern neighbour Vietnam has complained about the world’s second-largest economy's zero Covid policy which is hurting trade between the two countries. In addition to serving as an important overland route, we must realise that Vietnam is a key supplier of accessories and parts to China, which will definitely have a bearing on China’s supply chain.

Consequently, Vietnam’s trade ministry urged South China’s Guangxi Zhuang autonomous region authorities to de-clog trade congestion due to a mismatch between their Covid control measures.

Many neighbouring countries are questioning China’s zero Covid policy but the dragon seems determined to continue with its stringent position in the light of recent Covid outbreaks in Xi’an and Ningbo. Newer massive outbreaks in several Western countries have also strengthened the Chinese resolve to continue the zero Covid policy.

According to the Global Times, a leading Chinese voice, more than 1.3 billion population, urban-rural gap and insufficient healthcare motivates China to continue its zero void policy.

City-wide lockdown in Xi’an, a key manufacturing hub, impacted the industrial chain in China as well as at a global scale. Recently, Micron Technology and Samsung Electronics forecast that lockdowns in Xi’an will disrupt their chip manufacturing bases, leading to strained global supply chains.

Many polyester factories located in Ningbo ceased production due to raw material supply disruptions supposed to come through the trucks and also take back finished goods. Though local officials allowed more number of trucks to pick up gas from Cnooc Ltd’s terminal at Ningbo Port, total pickups are far below the 300 to 400 trucks that normally ferried gas from the port on a daily basis.

About 10 percent of trucking capacity resumed services in the Ningbo area by the second week of January though Maersk has estimated that 20 percent of drivers have been permitted to resume operations.

China is following the strategy of immediate and extensive lockdowns in reaction to even the smallest of outbreaks, enabling the manufacturing giant to largely arresting the virus spread within the country.

Can Hong Kong be an alternative?

Amid port congestions, some view that Hong Kong (HK) can seize the opportunity to succeed and consolidate its position as a regional logistics hub by aligning with the increasingly regional economic order, bolstering the capacity and connectivity and promoting its world-class legal and financial services.

Further reinforcing Hong Kong’s integration with East Asian economies, with which it is already extensively linked will create a conducive atmosphere for the city to face global challenges and emerge as a major hub.

When Yantian International Container Terminal was shut last year because of Covid outbreaks, port congestion and inflating shipping costs drove some demand to hong Kong. The port in the former British colonial metropolis has wide connectivity with Greater Bay Area, inland manufacturing hubs in China such as Wuhan and Chongqing, including possible Belt and Road Initiative countries in central Asia. 

Chinese New Year

Ports congestion in China has come at a very inopportune time when the Chinese New Year is around the corner, February 1. As the new year holiday brings about a fortnight of lull in factory production, many companies will find it difficult to replenish their inventories in the forthcoming months. This hiccup will compel firms to look for alternative shipping or products which ultimately results in inflated costs for the consumer.‍