Newsletter Blast: Covid Lockdowns (March 14-20) and continuing impact of the Russian invasion of Ukraine
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GLOBAL
New Covid Lockdowns in China Impact Global Supply Chains
The situation is still very fluid, and we’ll continue to monitor and update you as further information becomes available.
On Sunday, March 13, city authorities of Shenzhen and Dongguan—two of China’s largest manufacturing hubs—announced a general lockdown from March 14-20 in response to a nationwide surge in Covid outbreaks. Dongguan has now extended lockdowns to March 21. Overall, there hasn't been a huge impact yet to airlines and terminal operations as well as air capacity.
General Impact on Global Supply Chains
Shenzhen and Hong Kong are critical container shipping hubs for global supply chains. As shown in our recent Ocean and Air Timeliness Indicators, supply chain congestion and delays caused in part by the ongoing pandemic have not yet subsided. These new lockdowns have the potential to worsen disruptions significantly. As a result, we may see further price hikes and deeper delays in the days and weeks ahead.
It is fair to assume that cargo originating in Shenzhen will remain in place for at least the next week. Many factories are also being closed during this lockdown period, with announcements to this effect already being made by major regional shippers Foxconn, Flextronics, and others. Some factories are open, but they can’t utilize the space as their industrial parks aren’t allowing 3rd-party truckers from outside of their home city to enter and pick up the goods. (The majority of the shippers are standing by for further updates from local authorities.)
Shenzhen Update: According to a notice issued by the Shenzhen Covid-19 Prevention and Control Command Office, the city’s 17+ million residents must stay home till Sunday, March 20, unless they’re stepping out for three rounds of COVID testing. This lockdown includes:
Closure of public transportation (bus and subway)
Office employees asked to work from home (except for essential services)
Residents prohibited from leaving these cities
The communities, urban villages, and industrial parks will implement closed management.
Multiple rounds of Covid testing will be conducted on the general public.
The cross-border freight connection between Shenzhen and Hong Kong at Liantang port is suspended from March 15.
Shanghai Update: Shanghai is also under similar restrictions starting from March 15 as COVID-19 cases surge. Data released on March 15 showed that Shanghai recorded 240+ new Covid infections on March 14 (symptomatic and asymptomatic).
Multiple buildings and compounds have been closed throughout the city.
District, sub-district, and neighborhood level governments have issued various restrictions on residents and requirements include a negative NAT test within 24-48 hours. Testing times continue to be slow with long lines at many testing centers.
Schools are closed and some neighborhoods have entered lockdown and conducted mass testing.
Some factories are closed for 2 days at least. The highway system into Shanghai is severely impacted by regulations in nearby provinces and daily trucker policy changes.
Additionally, there are plans under discussion to divert passenger flights headed to Shanghai to other cities. There are currently no restrictions on cargo flights, however, the diversion of passenger flights will impact air freight rates.
In today’s edition:
Navigating Global Supply Chains & Logistics
China is facing its worst outbreak of Covid since the beginning of the pandemic, the country reported more than 3,500 cases in one day, and scientists are warning the daily number of cases could grow to ten times that before declining. NBC's Janis Mackey Freyer reports.
Supply chain brace for impact of Shenzhen lockdowns Supply Chain Dive has reported that eleven districts in Shenzhen, China are currently under lockdown. Shenzhen, a critical port city and major manufacturing, tech, and logistics hub, handled 26.55 million TEUs of cargo in 2020. Recently the port saw an 8% drop in average container prices, but the strict lockdowns at a critical port city create significant cause for concern.
Read more: New Covid Lockdowns in China Impact Global Supply Chains
Transatlantic disruptions as a result of Covid and Russia invasion The Loadstar recently reported that Europe <> US trade is delayed by one to three weeks. This is the result of a build-up of Russian transshipment cargo from Asia, which following the sanctions, has nowhere to go. Furthermore, the disruption is causing a shortage of empty containers in Europe, and will likely prompt a rise in blank sailings.
U.S. and Allies Move to Ostracize Russia from Global Trade
The US, the EU, Japan, and the UK (along with Canada who has already acted) are aiming to remove Permanent Normal Trade Relations (PNTR) status on imports from Russia, effectively working to remove Russia from the current global trade regime. For the US, such a move requires legislative action, to which Speaker Nancy Pelosi (D-CA) has already begun the mechanics of a relevant bill to move swiftly through Congress.
Factory Output News
Vietnam Alibaba’s logistics arm, Cainiao Network announced the development of a new logistics park in Vietnam Source
Cambodia strategic plan on garment, footwear and travel goods development aims to attract more investment Source
Thailand businesses feel the impact of Russia invasion as they lose market access to Russia Source
Malaysia Manufacturing investments in Penang records RM76.2 billion in 2021, a 440% YoY growth Source
Indonesia is likely to benefit from the spike in crude oil prices as demand increases for Indonesia’s mainstay commodities such as coal and palm oil Source
Bangladesh Purchase orders of US apparel brands are shifting to Bangladesh from China and Vietnam Source
Asia → North America (TPEB)
Covid-19 outbreaks in China and resultant lockdown/ restriction measures disrupt production and trade activity in Southern (Shenzhen/Dongguan) and Eastern (Shanghai) regions. Ocean carriers are assessing impacts to bookings and have not yet announced any blank sailings. Additional volatility drivers in the market remain: severe congestion, equipment imbalances, sliding vessel schedules, port omissions, blank sailings, and increased fuel charges. The moving market remains primarily at premium levels with some pockets and routings open for FAK.
Rates Rate levels remain elevated and the premium market is strong.
Space Critical
Capacity/Equipment Critical/Severe Undercapacity
Recommendation Book at least 3-4 weeks prior to CRD. Consider premium options. Be flexible in regard to equipment and routings. Check closely with suppliers to understand any Covid-related impacts or changes to production outputs and forecasts.
Asia → Europe (FEWB)
COVID surges in China with lockdown in Shenzhen and restrictions in Shanghai and a number of other cities having a business impact and putting pressure on ocean shipping volumes. Factory production within Shenzhen has been limited as employees are not able to go to work. Trucker shortage is making it difficult to move containers to the ports. There is available space on FAK and spot across all alliances but carriers are still not open for more long-term named accounts. It is expected that there will likely be some port omissions and blank sailings announced by carriers as a response to recent developments.
Rates Rates remain at a high level but have been on a downward trend throughout March due to a slowdown in the market.
Space Tight space situation
Capacity/Equipment Severe equipment shortage across all Asia origins.
Recommendation Book at least 3 to 4 weeks prior to CRD. Consider premium options, which may be limited. Be flexible in regard to equipment.
Indian Subcontinent → North America
Equipment shortages reported at major ports. Over the past few months major ports such as Nhava Sheva and Mundra have been able to keep up with demand for empty equipment while smaller ports like Kolkata and Tuticorin really struggled. As of recently, Flexport is seeing reports of equipment deficits across all major ports in India. This will have a downstream effect on the smaller ports as well as Inland container depots which are often replenished by these larger ports.
Rates Maintained through 2H March. Premium rate levels should be expected for smaller Indian ports and Bangladesh as demand exceeds vessel/equipment supply.
Space to the USWC is and will remain a challenge into 2022. Port omissions on services to the USWC continue to cut capacity out of the Indian sub-con. Recommendation is to move on premium services. Space to the USEC will be difficult into Savannah, Charleston, and New York until April as bunched vessels off the coast of USEC are resulting in longer turn-around time back to origin and port of discharge omissions. This leaves a gap of sailings for the most consistent services typically relied upon for ISC to the USEC.
Equipment deficits are being reported across many ports in India. Most affected are the S/SE ports, Kolkata, and Inland container depots in North India.
Recommendation remains to load via wet port and avoid Inland container depots when possible. ICDs are a chokepoint for containers which often leads to delays in SO release. Booking on some premium services will give you priority on equipment.
Asia
N.China: Covid cases in Shanghai continue to worsen with many buildings and areas closing due to quarantine restrictions. PVG airport and two terminals are still operating normally however the situation may change day today. Some factories have already begun shutting down and travel between provinces is becoming restricted. Rates have decreased slightly compared to the previous week and demand may start to slow down. The overall market is fluid as the government continues to monitor the Covid situation closely.
S. China: Carriers ex-HKG have reduced their flight frequency due to the Covid outbreak and Russia-Ukraine conflict and the overall market demand is soft. Cross-border trucking capacity continues to be very limited and terminals are seeing shortages in manpower. As a result of these issues rates have increased compared to the prior week. The market ex-SZX/CAN is hot as many customers are experiencing cross-border limitations with HKG, resulting in rate increases. Over the weekend, the local government announced new Covid measures effective March 14-20, suspending all manufacturing activities, closing warehouses, and affecting traffic.
Taiwan: Market capacity is expected to decrease due to maintenance issues for several freighters so rates will likely increase by next week. Demand to SFO, DFW, and ATL continues to be hot. Carriers have also announced fuel increases starting on 3/22.
SE Asia: The market ex-Thailand is slowly starting to pick up and rates are expected to begin increasing. Some capacity has been suspended due to backlog at transit hubs and aircraft maintenance. Airlines are also starting to increase rates to reflect the increasing fuel surcharge. Demand ex-northern Vietnam remains slow and some factories have been affected due to another wave of Covid. Some carriers have also canceled flights as a result of the lack of cargo and increased fuel price. Demand ex-southern Vietnam is slowly starting to pick up and TPEB rates have increased slightly. Some FEWB capacity has decreased due to the ongoing Russia-Ukraine conflict.
Europe
Demand steady, a slight increase in comparison to last week. Bigger projects remain on the market as the Transatlantic ocean market is suffering from disruption/congestion
Rates at a stable high. Where we are seeing the biggest increases are in the fuel surcharges. The IATA Jet Fuel Index is at record high levels, and airlines will pass through the cost.
Russian airlines are still banned from EU/US airspace. This is causing a decrease in freighter capacity on the TAWB.
Deferred routings are still providing a viable routing option if already tight lead times can take it. We also see cheaper options on the market to secondary hubs where airlines have regular passenger flights.
Limited congestion at EU terminals.
