Shipping Industry Braces as China Experiences their Worst Covid Outbreak in a Year

05/08/21

Shipping will need to start to make contingency plans if cases of Covid-19 continue to escalate in China, one of the world’s most important nations for shipping movements.

The delta variant has broken through the country’s virus defences, which are some of the strictest in the world, and reached nearly half of China’s 32 provinces in just two weeks. While the overall number of infections — more than 360 so far — is still lower than Covid resurgences elsewhere, the wide spread indicates that the variant is moving quickly with many millions of Chinese now in lockdown.

As cases emerged in the city of Zhangjiajie, the city ordered residential communities to be sealed on Sunday, preventing people from leaving their homes. In a subsequent order on Tuesday, officials said no one, whether tourist or resident, could leave the city.

“For freight markets, the implications include delays at ports as authorities screen crews of incoming vessels and a hit to China’s oil demand if widespread lockdowns are imposed,” a report from the shipbroking company, Braemar ACM pointed out yesterday.

When a Covid-19 outbreak was detected at Yantian Port in late May, operations at the key southern Chinese export hub were slashed by 70% for most of June. Similar disruptions are on the cards in the coming weeks, while shipyards are also likely to see their delivery schedules come under pressure if any wider lockdown measures are taken.

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On the possible consequences for the container sector, Alan Murphy, CEO of Danish consultancy Sea-Intelligence, reminded readers of what happened in February 2020 when China first went into lockdown. Carriers responded with a wave of blank sailings.

“Assuming that a strict China lockdown would lead to a scenario as in February 2020, we would expect a drop in production of 15-20% for about a month,” Murphy suggested.

“Cargo owners, already stressed beyond sanity from devastatingly high freight rates and absurd surcharges, and with no way to secure neither equipment nor space, would suddenly see their procurement costs sky-rocket in addition to their back-breaking logistics costs,” Murphy predicted, adding that the one possible silver lining for shippers could be that as the production decreases start to wave out to the Chinese ports, pressure would start to ease off on the ocean bottleneck, which could start to bring down freight rates.

The added concern Murphy has is if Chinese ports were not able to run at full capacity, like Yantian earlier this year:

“For container shipping, which is more than red-hot at the moment, even a brief halt in Chinese exports is likely to ease the crunch a bit logistically so long as a lockdown only closes manufacturing sectors and not ports and terminals,” commented Peter Sand, chief shipping analyst at BIMCO.

Information sourced from here & here.