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Global shipping was just starting to recover from the chaos of the pandemic. Now port congestion and delays are back and could be around for a while.
COVID-19 lockdowns in China have wreaked havoc at Shanghai, the world's biggest container port, and are now causing problems at other major ports around the world.
Some Chinese cities, including Shanghai, have started easing COVID-19 restrictions in recent days, but experts say that the damage has already been done, and global shipping will suffer well into the summer. That could exert even more pressure on global supply chains already reeling from Russia's invasion of Ukraine, and keep inflation running hot.
Data from Project44, which tracks global supply chains, showed that shipment delays between China and major U.S. and European ports have quadrupled since late March, when China shut down the city of Shanghai, which has the world's busiest container port.
By the end of April, ships from China to Seattle were taking four days longer than expected to arrive, up from about one day the previous month.
The time it takes ships to leave China and arrive at major ports around the world increased steadily over the past year, but there had been some signs of relief since December with transit times between Shanghai and Long Beach, for example, dropping in January and February.
Since March, however, there's been a sharp increase again in transit times on that route.
To add to the problem, many truck drivers have struggled to reach ports in China to pick up containers because of travel restrictions and COVID-19 testing requirements. Shipping giant Maersk warned in an advisory last month that trucking services in Shanghai would be "severely" impacted by these restrictions.
"With the manufacturing industry being shuttered [in Shanghai] and truckers unable to travel quickly, exports have been reduced, and shipment delays have increased," said Josh Brazil, director of Supply Chain Data Insights at Project44.
Delays will "continue into the summer months," as factories struggle to return to normal operations in Shanghai, he added.
Although authorities have allowed some businesses to restart production, many workers are still stuck in quarantine at home. Factories that do reopen are facing component shortages and difficulty in securing trucks to carry goods into or out of the port.
"The ripples in shipment delays are only beginning to become visible and are expected to extend well into the next few months," said Brazil.
Shanghai — China's leading financial center and most populous city — has been under a strict lockdown since late March. More than 8 million residents are still banned from leaving their residential compounds. The COVID-19 restrictions have spread to other cities, including Beijing — the nation's capital.
Shanghai port remained open throughout the lockdown, but data from various shipping firms show an increasing backlog of ships and containers.
U.S. supply chain companies have expressed concerns about fresh chaos heading towards American ports, which are still recovering from the severe congestion and delays they suffered last year.
Shelley Simpson, chief commercial officer for JB Hunt Transport Services, said late last month that while there has been "a temporary relief" at U.S. ports, things may get a lot "a lot worse" this summer because of what's happening in China.
It "just takes a little bit of disruption to really change the environment all over again," she added.
Shipping queues are getting worse in China — and other parts of the world.
Nearly 20% of container vessels globally are currently waiting outside congested ports, according to a survey published last Thursday by Windward, an Israel-based global maritime data firm.
Almost a quarter of those unberthed ships are stuck outside Chinese ports. That's 412 ships, up 58% since February, the survey added.
It's clear that lockdowns in China have caused a bottleneck, the firm said.
Across China, at least 27 cities are under full or partial lockdown, which could be impacting up to 185 million residents across the country, according to latest CNN calculation on Wednesday. Beijing effectively shut down its largest district this week.
President Xi Jinping signaled this week that China would continue with its zero tolerance approach to COVID-19. On Thursday, Xi told all levels of government to "resolutely adhere to the zero-COVID policy."
China is home to seven of the world's top ten container ports, including Shanghai, Ningbo-Zhoushan, Shenzhen, and Hong Kong. In Shanghai — the epicenter of China's current Covid outbreak, the situation remains severe.
The number of vessels waiting at the Port of Shanghai had increased to 384 by April 25, up 27% from a month earlier, according to most recent data from S&P Global Market Intelligence.
Pressure is also building on other Chinese ports, as vessels try to find alternative ports to berth. Ships have faced growing delays since late March outside Ningbo-Zhoushan port, the world's third largest port, less than a hundred miles from Shanghai, according to Lloyd's List Intelligence.
Containers are also piling up because of truck shortages.
At the peak of the lockdown in Shanghai, containers were sitting for as many as 15 days at the port before being picked up by truckers, up from fewer than 5 days when the restrictions first took effect, Project 44 data showed. The average wait time has since come down but was still 10 days last Wednesday.
Zhang Wei, vice mayor of Shanghai, acknowledged last week that the city is seeing "reduced efficiency" in cargo transport and "poor logistics" since the lockdown.
The turmoil at the ports has already hit China's factories and foreign trade, as manufacturers have to wait longer to get raw materials.
It is also harder for them to ship their products to customers. Inventories of finished goods have surged to the highest level in about a decade, as products pile up in warehouses due to weak demand and the difficulty of finding trucks to move them.
Latest PMI surveys — released on Saturday — showed that factory activity slumped to the worst level since February 2020, when China was battling the initial Covid outbreak. New export orders that manufacturers received in April fell at a much faster pace than in March.
The decline in export orders showed that the chaos at some major ports, including Shanghai, have hit China's trade with the rest of the world, according to Goldman Sachs analysts.
"Worryingly, there was plenty of evidence of worsening supply pressures, with supplier delivery times collapsing, input prices surging and inventories of finished good rising to their highest since June 2012," wrote Mitul Kotecha, head of emerging markets strategy at TD Securities, in a report.
"Such supply pressures will have ramifications across supply chains globally, as already evidenced in some recent U.S. Q1 earnings reports in the tech sector," he added.
The situation in Shanghai will push global inflation higher this year, said Daejin Lee, associate director at S&P Global Market Intelligence.
He pointed out that last year's inflation was driven by two factors — supply shortages of key parts owing to supply chain bottlenecks, and record high container freight rates.
Both problems continue this year, even as Russia's invasion of Ukraine has fueled global inflation by driving up prices for energy and other key commodities.
"Another lengthy delay" in seaborne supply of key parts because of China's port congestion could increase consumer prices "much faster than previously expected," Lee said.
Maersk said Wednesday that freight rates will stay elevated as supply chain pressures persist. According to the company, congestion in sectors such as trucking and warehousing in mainland China, have created "bottlenecks, resulting in challenged supply chain management services and elevated rates."
The company's average freight rate jumped 71% in the first quarter from a year earlier.
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