Manufacturers, warehouses, and truckers in key Chinese cities struggle as strict COVID lockdowns endure. It’s led to severe congestion in US-Asia shipping logistics and freight transport that has affected carriers and companies across the world.

China’s zero-COVID policy disrupts worldwide supply chains and shipping

In March 2022, congestion in the key Chinese ports of Shenzhen and Hong Kong rose to their highest level since October 2021. Approximately 174 vessels were anchored or loading at these hubs, foreshadowing major delays in shipped goods to the U.S. this summer.

Although the current hiatus in China has resulted in the lightening of cargo at congested US ports, the coast isn’t clear yet. It’s highly likely that Trans-Pacific freight shipping schedules will worsen before they normalize, affecting carriers and shippers through the end of the year.

There is growing concern that current events will result in a downstream of the heaviest disruptions to global supply chains since the start of the pandemic.

The recent situation at US ports

Long Beach and Los Angeles – two of the busiest US ports – recently hit and exceeded full carrier vessel capacity. Congestion from the backed up ships and lack of labor to unload and pack them drove up port and handling charges, causing mayhem for shippers and carriers alike.

Many ships at these ports sat idle for two weeks waiting to unload cargo – around the same amount of time it takes to sail back to China. And if those ships were delayed again in China, carriers missed two potential voyages, resulting in a massive loss of revenue.

This isn’t an exceptional occurrence caused by China’s drawn-out manufacturing and transport standstill. Cargo diverted from the West Coast to the less-congested East Coast ports as a short-term solution caused delays and problems for Transatlantic trade routes.

Worse yet, the “trickle down” effect makes it harder for shippers to forecast delays. The consequences of halted activity in China unravels abroad in the following weeks to months.

China’s lockdowns, namely in Shanghai, have temporarily prevented more cargo ships from piling up in US ports. In March 2022, this significantly improved congestion, especially at San Pedro’s ports:

Despite the recent ease in congestion, many fear a drastic rebound once Shanghai and other major Chinese cities reopen – when tons of backed up cargo will be on the move again.

Graph by American Shipper, based on data from Marine Exchange of Southern California

The consequences for shippers and companies

Shanghai is China’s leading manufacturing center and the world’s largest container port. Their lingering lockdowns and strict COVID restrictions have quadrupled shipping delays between China and major US and European ports, since late March 2022.

As a result, Chinese and worldwide shippers are experiencing palpable consequences:

  • Container handling volumes in Shanghai fell by ~25% in April 2022 to 100,00 TEU.
  • Domestic fuel demand in China has dropped by 20%, the biggest drop since the beginning of the pandemic – an additional strain on the economy.
  • As of May 2022, 20% of global container vessels are stranded outside congested ports, a quarter of those waiting outside Chinese ports.
  • 2.5x increase in freight costs along the Trans-Pacific route; shipping a single container from China to the U.S. now costs upwards of $15k, compared to $5.9k last year.
  • West to East coast cargo diversion and increased Trans-Atlantic leisure flights are driving “red hot” demand for airspace – shippers are likely to see higher air freight rates and further capacity shortages in coming months.

What does this mean for the future and what can shippers expect?

In the immediate future, freight forwarders and carriers are implementing quick fixes: strengthening land transport, diverting cargo to less-affected East and Gulf Coast ports. The issue here? Like pushing 24/7 port operations, these are short-term measures for a systemic problem.

As Shanghai prepares to reopen and lift restrictions from June 1st, shippers should brace for another challenge. The Load Star forecasts, “sudden-improved inventory levels from China combined with a world-wide downturn in consumer demand could negatively impact import volumes.”

To minimize crippling disruptions in the long-run, the US needs to optimize its supply chain process and port operations infrastructure. Transportation experts have proposed more efficient “peel-off” cargo handling, customs clearance automation, and expanding West Coast carrier capacity with geographically advantageous ports.

Sources:

https://www.bloomberg.com/news/articles/2022-03-24/china-port-jams-at-five-month-high-pose-risk-to-u-s-deliveries

https://www.joc.com/maritime-news/trade-lanes/trans-pacific-forwarders-carriers-brace-post-china-lockdown-surge_20220428.html

https://www.freightos.com/freight-resources/port-of-long-beach-congestion-delays-news/

https://theloadstar.com/us-west-coast-port-congestion-starts-to-ease-as-imports-divert-to-the-east/

https://www.freightwaves.com/news/is-this-the-calm-before-california-ports-next-cargo-storm

https://www.seatrade-maritime.com/ports-logistics/shanghai-port-container-handling-drops-25-april-lockdown

https://fortune.com/2022/04/23/china-lockdowns-inflation-supply-chain-nightmare-shanghai/

https://amp.cnn.com/cnn/2022/05/06/business/china-lockdowns-global-port-chaos-supply-chains-intl-hnk/index.html

https://www.joc.com/air-cargo/international-air-freight/congestion-us-east-coast-keeps-air-cargo-%E2%80%98red-hot%E2%80%99-dsv_20220509.html

https://www.reuters.com/world/china/shanghai-aims-return-normal-life-june-1-city-official-2022-05-16/

https://ajot.com/news/todays-supply-chain-bottlenecks-to-yield-three-big-long-term-solutions