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China’s Zero-Covid Policy Has ‘Ripple Effect’ on Supply Chains

Carriers struggled to maintain reliable schedules in December, as congestion at ports and the omicron variant of Covid-19 drove supply chain delays, according to a new Project44 report.

While carriers implemented various strategies, including blank sailings and changing sailing schedules to improve on-time reliability, these efforts have not proven as successful as carriers had hoped, according to the Chicago-based company, whose platform for shippers and logistics providers connects, automates and provides visibility into key transportation processes.

The actions resulted in shippers paying higher freight rates and dealing with delivery delays. Citing Nicholas Sly, an economist with the Kansas City Federal Reserve Bank, a 15 percent increase in shipping costs translates to a 0.1 percent increase in core inflation after one year.

In addition, China’s zero-Covid policy is playing a major role in shipping delays. In December, with Covid cases reported in the Chinese province of Zhejiang, which includes the port city of Ningbo, a new lockdown restricted trucks at the port and hampered operations.

“Covid impacts to shipping will be a toss-up in terms of labor available at Asian manufacturers, ports and throughout the supply chain,” Josh Brazil, vice president of supply chain data insights at Project44, said. “This will likely continue to impact carriers’ schedule reliability, which in turn will cause a ripple effect downstream of supply chains.”

High demand drove ship delays from China to Europe that spiked in December. On Dec 22, Europe’s largest port, Rotterdam, announced that it surpassed 15 million 20-foot containers or equivalent units (TEUs), the first time a European port has reached that level.

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Carriers struggled with schedule reliability in December, as port congestion and Omicron resulted in delays, said a report from Project44.
Shanghai to Long Beach median delay days and average spot rates increased from November to December. Courtesy

The number of ship delay days to the U.S. West Coast has steadily increased since October, coinciding with the holiday peak season in the U.S., the report noted. Typically, the peak occurs in September but 2021 was not a normal year for the ocean freight market as retailer inventories earmarked for the holiday season arrived at stores later due to port congestion on the West Coast.

On the East Coast, the opposite occurred. Since October, the number of ship delay days has declined, likely due to various measures ports such as Savannah, Ga. took to ensure carriers could efficiently load and unload containers.

Shifting from Ningbo port to Shanghai over Covid outbreaks backfired on some shippers, as congestion at the latter gateway increased. As a result, Shanghai recorded an 86 percent increase year-over-year in blank sailings, according to Project44.

Other ports also saw year-over-year increases in blank sailings, including Rotterdam, Singapore and Hong Kong, primarily due to global port congestion that resulted in ships not getting back to these ports in time.

“Blank sailings will continue well into 2022 as ports work down backlogs and consumer spending remains strong,” Brazil said.

Transit times increased from China’s leading ports to Los Angeles-Long Beach due to port congestion from ships either slow steaming or loitering off the coast of Mexico and other locations before arriving in U.S. West Coast waters. The new queuing system at West Coast ports also seems to have played a role in the longer transit times, although it has reportedly helped improve air pollution in that area, the report said.

After little change from October to November, Shanghai to Long Beach median delay days and average spot rates rose from November to December. More than 100 ships lined up to enter Long Beach and Los Angeles during December, while the threat of a container dwell fee helped move full containers from the complex during the month.

Meanwhile, despite rising spot rates from Shanghai to New York, median delay days continued to improve. Director of Port Authority of New York and New Jersey Sam Ruda credited the waterfront workforce and other stakeholders that run 24/7 operations for keeping anchorage waits short.

Carriers like Maersk expect the exceptional market conditions in shipping to persist until the first quarter of 2022 or longer. “The strong result in the [fourth] quarter reflects the continuation of the exceptional market situation within Ocean caused by the global disruptions to the supply chains, which have led to further increase in container freight rates,” the company said last week. Spot rates are likely to stay high through the first quarter.

Drewry’s composite World Container Index increased 1.6 percent to $9,698.33 per 40-foot container (FEU) for the week ended Jan. 20, which was also 82 percent higher than a year earlier. The average composite index of the WCI for year-to-date was $9,551 per FEU, which is $6,656 higher than the five-year average of $2,895 per FEU. Drewry expects rates to climb in the coming week.

“Spot rates will remain high throughout most of 2022, however it’s unlikely port conditions will return to pre-pandemic levels,” Brazil added.