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Shipping ‘Shockwaves’: What Covid Lockdowns, Geopolitical Turmoil Mean for Cargo

So far, Russia’s invasion of Ukraine and the resulting sanctions and port closings in the two countries have not been felt in higher container freight rates or disruptions globally, but two reports out on Monday suggest a spike in cargo costs is only a matter of time.

The Container Exchange said its Container Availability (CAx) index improved soon after the Chinese New Year across key ports in China, but Friday’s announcement of nationwide Covid lockdowns means the supply chain must prepare for new turmoil in the coming months, impeding the flow of container movement as importers worldwide prepare for the peak season later this year.

At the Chinese port of Ningbo, average prices for a 40-foot unit (FEU) fell 10 percent to $5,328 per FEU on Feb. 27 from $5,930 on Feb. 14. As of March 10, these prices stood at $5,248. Similarly, average prices fell by 10 percent to 15 percent at the Chinese ports of Shanghai, Qingdao and Shenzhen through Friday.

Lockdowns in Shenzhen, Zhejiang, Shanghai, Jilin, Suzhou, Guangzhou and Beijing will clearly heavily restrict container movement at these ports, which will likely prove to be further damaging for the global supply chain, the report said.

“Freight rates and container prices were already at a record high even before the invasion started and what happened immediately due to the war is that the Russian ports were not being called by the national shipping lines anymore, the Black Sea being somehow closed, and the Asia European railway being quite hit by this,” Dr. Johannes Schlingmeier, co-founder and CEO of Container xChange, said.

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“The immediate impact of this on the overall supply chain has not started to show up–not ignoring the fact that the Russian importance on global trade is not big enough for the containerized cargo to really disrupt the supply chains,” Schlingmeier added. “We see on the other side, the container prices at record highs, containers piling up and a massive shortage, as well…Lockdowns in China will further reduce capacity and cause a surge in already inflated shipping prices. The shockwaves will be felt across the U.S. and America, and almost everywhere in the world.”

The Freightos Baltic Global Index was stable in February, increasing just 1 percent to $9,838 per FEU, but 128 percent higher than a year ago and more than six times the pre-pandemic norm.

“Although the war in Ukraine is expected to affect ocean freight and rates, those effects have yet to manifest in container prices,” said Judah Levine, research lead at Freightos.

Just as the lead up to Lunar New Year on the transpacific did not result in much of a rate climb, neither did the weeks just after the holiday, The Baltic Index revealed. Asia-North America West Coast rates climbed 4 percent to $16,155 per FEU, nearly triple a year ago, while East Coast prices rose 8 percent to $18,109 per FEU, 168 percent higher than last year and nearly seven times the norm.

“The sharper climb to the East Coast may reflect the growing carrier and shipper focus on East Coast destination ports,” Levine wrote. “Although the number of vessels waiting for a berth at LA-Long Beach has continued to drop and the volume of empty containers at the ports have also fallen, persistent delays are leading many shippers to look for alternatives. As a result, congestion at East Coast ports, such as Charleston, has increased and the latest projections see volumes remaining elevated in the coming months.”

Rising oil prices, especially as a result of the war in Ukraine, are likely to contribute additional surcharges to global ocean freight, although other impacts of the conflict will likely be felt most strongly on European shipping lanes, Freightos said.

“Shippers to Europe and the Mediterranean are bracing for ripples from the war in Ukraine not just in fuel costs and possible War Risk surcharges, but also in congestion, delays and higher costs that port and carrier bans on Russian shipments could have,” Levine said.

“Congestion and poor reliability are already big contributors to elevated Asia-Europe rates,” he added. “Diverted or suspended Russian-bound containers piling up at European and Mediterranean ports are set to worsen that congestion. The threat of rail to ocean conversions for Asia-Europe containers that traditionally cross Russia by train could also put additional strain on already tight capacity and added pressure on rates.”