The ongoing Omicron variant-driven issues that have been plaguing key manufacturing and port hubs in China continue to raise supply chain concerns. These issues are having a significant downstream impact on US-bound import patterns, at a time when the ongoing supply chain congestion issues appeared to be showing signs of improvement. And since then, China’s largest city, Shanghai, is under a full lockdown due to the increase in positive cases.
On 15 March, New York Times reported that since Omicron infections have picked up in China, a number of cities with major manufacturing operations have closed down, including Dongguan and Shenzhen where Foxconn has huge factories to make iPhones and other Apple products; Changchun and Jilin City in Jilin Province; and Langfang, next to Beijing as well as Suifenhe and Manzhouli located near China’s border with Russia.
Chicago-based 3PL and global freight forwarder SEKO Logistics said in a customer advisory that ocean and airport operations in Shanghai are currently open, with factories operating under a closed loop system.
The company said that for ocean freight deliveries, drivers can deliver containers to the Port of Shanghai’s terminals if they are picking up from factories that are open outside of Shanghai, provided they have a negative Covid test and an Equipment Interchange Receipt permit with an anti-epidemic pass to deliver and accept shipments.
“Ocean terminals are operating as normal but with lower efficiency due to staff shortages,” said SEKO officials. “We have seen an approximate 80 percent decrease in container pickups from outside the lockdown area due to driver shortages and restrictions. Carriers have announced omit calling at Shanghai and vessel cut-off delays due to traffic restrictions.
“This will put additional pressure on the terminal once it opens, and we expect port congestion once the restrictions end. The port of Ningbo is an alternative, but it is now being impacted as almost all cargo excluding from the Zhejiang Province has been diverted to Ningbo as an alternative port to Shanghai. This has caused an increase in rates out of Ningbo as well as an equipment shortage.”
Judah Levine, head of Research for Freightos, a SaaS-enabled logistics technology provider focused on instant freight quotes for freight forwarders and shippers, wrote that the indefinite extension of the Shanghai lockdown is causing a significant slowdown of operations at major air and ocean ports due to labor shortages and also a decrease on goods availability as manufacturing and warehouses close, and trucking availability is significantly disrupted because of quarantine rules and travel restrictions.
“Some shippers are shifting to alternate ports like Ningbo when possible and there are reports of carriers omitting Shanghai port calls. These developments are resulting in growing backlogs of ships not only in Shanghai but in Ningbo as well. Last year’s outbreak at Shenzen’s port of Yantian slowed operations by more than 70 percent there for nearly a week and resulted in a 20 percent spike in ocean rates to the US and Europe.”
As for current ocean rates to the US, Levine explained rates have remained stable and are down 3 percent since the outbreaks in China began, which he said could be attributed to the decrease in available goods.
“When operations rebound, we can expect some surge in shipments and possibly an increase in rates—though in the Yantian example, ocean prices began to climb shortly after the shutdown began,” wrote Levine.
Most indications are for strong transpacific volumes in the coming months, including some pull forward of summer demand to get ahead of peak season congestion and fears of West Coast labor disruptions. But there are also growing signs that consumer demand—the underlying driver of congestion and sky-high rates—is beginning to wane as a result of inflation.”