The Freightos Baltic Global index fell 7 percent to $8,747 per 40-foot container or equivalent unit (FEU) in April, driven by the slowdown of available exports out of China due to Covid lockdowns in Shanghai.
This rate is still double its level a year ago and nearly six times the pre-pandemic norm, the monthly report from the freight consultancy said. As the lockdown in Shanghai stretched through the month of April, the availability of exports continued to drop as factories remained closed and trucking capacity to move manufacturing inputs to factories and exports to the ports remained scarce, according to Judah Levine, research lead at Freightos.
“These factors have led to a significant decrease in export volumes out of Shanghai since the lockdown began and a two-day wait for arriving vessels,” Levine said. “Many shippers are diverting exports to Ningbo, where export volumes climbed along with congestion. Although some carriers are omitting Shanghai port calls or canceling some upcoming services, with the ports still open most ships continued to arrive.”
He noted that the decrease in available exports, possibly along with seasonality and inflation, contributed to the decrease in ocean rates since the lockdown. Asia-North America West Coast rates declined 11 percent since the end of March to $14,065 per FEU and Asia-North America East Coast prices dipped 3 percent to $17,148 per FEU–both still more than twice their levels a year ago.
“Expectations are that Shanghai will reopen by mid-May at the earliest,” Levine said. “The rebound will cause a surge in ocean volumes that will certainly increase congestion, delays and ocean rates. But there is reason to expect that the resulting disruptions won’t be as extreme as some we’ve seen in the last two years.”
Lars Jensen, CEO of Vespucci Maritime, noted in the report an increase toward the end of April in the number of blank sailings announced on the Asia-North Europe trade.
“In the beginning of May, we are now also beginning to see blank sailings on the Asia to U.S. East Coast trade,” Jensen said. “Unless Shanghai re-opens soon, the carriers are likely to further increase the number of blank sailings, as well as increasingly omitting Shanghai port to safeguard the integrity of the rest of their networks.”
He said a consequence of what he called Shanghai’s “Phase Two” lockdown period will be upwards pressure on spot rates. Another ripple effect will be a reduction in containers being re-positioned into the area during July and August.
“The magnitude is dependent on how much we will see blank sailings in the coming weeks,” Jensen said. “This will coincide with peak season and if it is a strong peak this could add further upwards rate pressure during the peak.”
Phase Three will be the re-opening of Shanghai, which will result in a surge of cargo out of the area and set the stage for capacity shortages and upward rate pressure, he noted. In addition, the transportation time from exporters in China to importers in U.S. and Europe is now about two months longer than pre-pandemic normal, according to data from Flexport.
“Importers will have learned a lesson from 2021, where it became a problem to get inbound cargo in time for Black Friday and Christmas season,” Jensen said. “They will most likely move up their timetable by a couple of months to properly compensate for the anticipated delays. This would potentially lead to the beginning of the peak happening in the wake of the Shanghai re-opening, creating an even tighter market.”
Finally, he said, there is another phase that will unfold over the coming years.
“The current shutdown in China is a clear consequence of political choices in the Chinese government,” Jensen added. ‘Many importers will begin to contemplate shifting part of the production out of China, simply to avoid the unknown risk of what the Chinese government could otherwise be doing to impact manufacturing. This will be a slow exodus of production likely to the benefit of manufacturers in other countries throughout Asia.”