Shanghai lockdown sees fewer vessel calls… and stores up future problems

Drewry consultants warn that the latest disruption of the global container system will see things worsen for BCOs before a partial improvement.

The Chinese lockdowns are hitting a global container distribution system that is already severely stressed and facing reduced capacity due to pervasive congestion. A positive reading of this situation could be that the reduction in volumes will speed up the normalisation of liner network performance and port productivity. Indeed, port congestion is easing in the US and Europe.

In Shanghai, where lockdowns started in mid-March, probably the most immediate impact was on road hauliers who found themselves having to quarantine 14 days before being allowed to exit the ‘infected area’ and return to the port’s hinterland. Obviously, this added significant cost to inbound containers that had already landed at the terminal and could not be evacuated. Other imports, as well as most export flows, were diverted to neighbouring ports like Ningbo and even Qingdao. Unfortunately, these ports were already congested themselves prior to this additional cargo influx.

We’re now almost 2 months into the Shanghai lockdowns, and in Figure 1 we’ve used AIS data to plot the impact on vessel calls at Shanghai, Ningbo and Qingdao. It shows a remarkably small initial impact: between the start of the lockdowns in weeks 11 and last week (week 18), the number of weekly port calls in Shanghai trended downwards by 2.5 port calls per week while at Ningbo and Qingdao the number increased by an average of resp. 1.1 and 0.5 per week. That said, the reduction in Shanghai port calls accelerated considerably since mid-April (week 15): the total reduction between week 15 (122 vessel calls) and week 18 (91 vessel calls) was 31, or 26%, of which 25 were this last week.

The reason for this reduction can be seen in Figure 2, where we’ve plotted the number of vessels waiting before berthing, expressed as a z-score which reflects the number of standard deviations the actual is above, or below, the average for pre-Covid 2019. This shows that despite the reduction in vessel calls, the seaside congestion worsened considerably at Shanghai following the lockdowns, peaking at 277 vessels in week 15. The increasing seaside congestion, in combination with a huge drop in export cargo volumes due to almost all factories in the Shanghai hinterland being shut, is likely what caused carriers to pull their ships out of the queue and call at Ningbo and Qingdao instead.

Even before the Shanghai lockdown threatened international supply chains, many BCOs and manufacturers in the US and Europe have had to stop selling products, either because margins dropped to unacceptable / negative levels or due to the stoppage of supply. Others did find sourcing alternatives, mostly in Vietnam or closer to home (near-shoring).

The greatest uncertainty is when China’s lockdown restrictions will end, and the “bullwhip”/rebound impact this will have across the supply chain. Many factories will need first to replenish their inventories of raw materials, and then do a ‘cold re-start’. Also liner shipping schedules will take at least one rotation to normalise. This would mean that even if lockdowns were to end today, the predictability and capacity of the container distribution system would be jeopardised during summer peak season. Not to mention the fact that once the Chinese manufacturing engine starts to heat-up, their port productivity is restored and liner schedules are back in form, boxes might get stuck at destination as those port and inland distribution systems crumble yet again.

Our view
Drewry estimates that up to 260,000 teu of export cargo was not shipped from Shanghai in April because of the lockdown. This is the equivalent of 26 fully-loaded 10,000teu containerships, which will have to be found somehow in future months, as supply chains are reactivated. Given that the summer peak season is normally busier, anyway, the Shanghai rebound is likely to support a strong peak season and new capacity shortages.
Source: Drewry