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Growing disruption in global shipping predicted after Shanghai renormalizes

There are growing fears throughout the shipping industry of renewed disruptions and backlogs as China begins renormalizing operations in Shanghai following nearly two months of Covid-related disruption.

Vessel diversions increased rapidly starting from mid-April, resulting in a growing amount of export cargo in Shanghai not being shipped. The restart in operations is expected to come just as the shipping industry traditionally moves towards peak season, with retailers building inventories for the end of summer and then holiday season sales in the US and Europe.

A survey of 200 individuals from across the container logistics industry conducted by logistics platform Container xChange forecast that this year’s summer peak season cargo surge would be even more chaotic for global supply chains than it was during the 2021 peak shipping season.

Half of the respondents to the latest Container xChange survey “xChange Industry Pulse Survey” said they expected the 2022 peak season to be worse than it was last year. A further 22% expected similar challenges to 2021, while 25% said they expected this year’s peak season would be less chaotic than in 2021.

In recent weeks the main US ports in the Atlantic and Pacific have reported a reduction in congestion, although to what extent this was down to increased throughput and to what extent it was down to reduced demand was not clear. Charleston on the Atlantic Coast recently said that its congestion was eliminated, while on the Pacific the ports of Los Angeles and Long Beach said that congestion had been reduced by two-thirds.

The Marine Exchange of Southern California reported earlier this week that only seven container ships were waiting at the anchorage, with an additional 30 having made reservations and slow steam or waiting further out to sea. At the beginning of the year these two numbers combined regularly exceeded 100.

Maritime research firm Drewry had noted a slow decline initially in the number of vessel calls at Shanghai as the Covid-19 lockdown took hold. It calculated that “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 1.1 and 0.5 per week. That said, the reduction in Shanghai port calls accelerated considerably since mid-April …. the total reduction (over the past three weeks) was 31, or 26%, of which 25 were this last week.”

Container xChange has noted in its latest report that cargo surges in 2021 resulted in record container shipping freight rates, delivery delays, port congestion, and declines in the reliability of container shipping services. A third of respondents in their survey said they were ensuring clients received enough inventory by “shipping early” in 2022 while 25% said they were using alternate routes this year.

Christian Roeloffs, co-Founder and CEO, of Container xChange, said that “predicting exactly what will happen in this year’s peak season is harder than normal because there are so many contradictory signs and intangibles”.

If China relaxes its lockdowns and restrictions, he said that there was “every sign that we’ll see a substantial surge as backlogs of exports are shipped. If lockdown rules are relaxed soon and truckers are allowed to get back to work, then those backlogs will be arriving at the same time as peak season orders, which could cause a lot of supply chain blockages at ports in Europe and the U.S. where congestion is already widespread.”

Drewry has estimated that the Covid-lockdown in Shanghai meant that up to 260,000 teu of export cargo was not shipped from the port in April. That equivalent of 10 of the largest container ships in the globe, or 26 smaller container ships, would need to be found over the next few months, and it was not apparently clear where they would come from. Drewry concluded therefore that the Shanghai rebound was likely to support a strong peak season and new capacity shortages.

The “xChange Industry Pulse Survey” sought to establish the priorities and challenges for the players and what they think are their strategies for container sourcing in the rest of the year 2022 and beyond.

It noted that, although many organized international shipments took place early this year, the majority continued to rely on the spot freight market

In terms of container sourcing strategy in 2022 when compared to pre-pandemic times, 56% said they had been “growing networks”, 38% said they had agreed to “long-term contracts” and 25% said they had followed a “multi-tender strategy”

58% of respondents reported that Covid lockdowns in China had made it “hard to produce/ship as much product as planned”, suggesting that cargo backlogs and unsatisfied demand were building as China’s zero-Covid strategy limits exports to Europe and the US.

Roeloffs noted that there were “very few indicators so far that President Xi is willing to compromise health policy to boost trade. Indeed, it might not be politically expedient for him to do so with the Communist Party National Congress set for later this year when he is expected to be endorsed for a third term.”

He also noted that, with interest rates rising in the US and UK, “the other side of this coin is demand, of course. Whether it is GDP forecasts, Purchasing Managers’ Index (PMI) numbers, rising inflation or consumer confidence, multiple metrics suggest demand could be deflating. So that could help offset any sudden rush of cargo from China, especially when there are also signs that consumers are spending more on services instead of products.”


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