Following the Corona-related closure of a terminal at China’s second-largest port, Ningbo, there is a threat of congestion in seaborne cargo handling elsewhere in the country. Global supply chains could remain disrupted until 2022.
The Corona outbreak at China’s second-largest port, Ningbo, is increasingly disrupting global maritime transport routes. According to data provider Refinitiv, more than 50 container ships are now waiting for clearance off Ningbo. There, a port employee had tested positive for Corona on August 10. Since then, operations at one terminal have been largely suspended.
The partial closure of one of the world’s largest commercial ports, which has been ongoing for a week, threatens to exacerbate the current problems with supply bottlenecks. According to a survey by the ifo Institute, almost two-thirds of German industrial companies were already complaining in July about bottlenecks in intermediate products such as semiconductors or basic chemical materials.
Shipping companies have to change ship routes
Shipping companies warned their customers of delays because they have to change the routes of their ships. At least 14 ships operated by France’s CMA CGM, five by Denmark’s Maersk and four by Hamburg-based Hapag-Lloyd will not call at Ningbo for the time being. Dozens of other ships changed their schedules, the shipping companies said. “As ships scheduled for the closed Meishan terminal will now be diverted to other terminals in Ningbo, we expect congestion and delays,” Hapag-Lloyd told its customers. The Hamburg-based company is offering them to truck containers from Ningbo to the port in Shanghai for loading.
But queues have long since formed there, too. Shanghai Port, for example, has 34 waiting ships, and another 18 are waiting outside Xiamen Port. This has implications for the logistics industry around the world. “China is a key component of global supply chains,” says Richard Lebovitz, chief executive of LeanDNA’s U.S. consultancy. “Any shutdowns or delays from China have the potential to delay finished goods by two or three levels.”
Reopening in early September?
Industry associations are also sounding the alarm. “China’s zero-tolerance policy is good for the pandemic, but bad for supply chains,” said Dawn Tiura, head of the Sourcing Industry Group, a U.S.-based association for the procurement industry. “This timing is very difficult, considering that in addition to upcoming purchases for the holiday season, the end of summer vacations in Europe and the U.S. are creating increased demand for goods.”
China is aware of the problem, as its own companies and exporters are also suffering from the shipping congestion. According to the industry service “Splash247”, which refers to the port operator, a partial reopening of the terminal in the port of Ningbo is planned from August 24. The full reopening is scheduled to take place on the first of September. The Meishan terminal, which was closed because of the Covid case, accounts for about one-fifth of the total 30 million container units that Ningbo Port handles annually.
With a volume of 28.7 million container units (TEU), Ningbo is twice as large as the largest European port of Rotterdam. The abbreviation TEU stands for “Twenty-Foot Equivalent Unit” and means a 20-foot standard container.
Requirements for crews
Experts believe that even after the terminal reopens, it will take another ten days to two weeks – that is, until mid-September – before the backlog is cleared and port operations can return to normal. Yesterday, the port authority claimed that it has been able to operate at 90 percent capacity despite the closure of Meishan in recent days. Still, shipowners and independent experts report that the port is experiencing unprecedented congestion.
Combating the Corona pandemic remains a top priority in China. For example, the Ministry of Transport requires crews of all foreign ships to provide proof of full vaccination or a negative test. No cargo may be unloaded or a ship loaded without these documents.
Freight prices massively increased
Hapag-Lloyd boss Rolf Habben Jansen is therefore skeptical that the industry’s supply problems will ease soon. At the end of June, the head of Germany’s largest container shipping line was still expecting things to calm down in the fall. He now expects the situation to ease in the first quarter of 2022 at the earliest.
Hapag-Lloyd also blames the reluctance of shipping companies to procure new container ships for the supply bottlenecks that have persisted for months. According to surveys by market research firm IHS Markit, current new orders represent 17 percent of the global fleet. This is more than in the two previous years when it was only ten percent. In 2011, however, the figure was still 25 percent.
Hapag-Lloyd also points out that the ships ordered will not be delivered immediately, but only in two to three years. It will therefore take time before the additional cargo capacity is available, the company says. For the shipowners, the current bottlenecks are a lucrative business, as freight prices in international shipping have risen by 46 percent in the first half of the year. As a result, the Hamburg-based shipping company has increased its revenue by about 51 percent to $10.6 billion. This makes the shipping companies one of the winners of the current supply problems.