Date: 24th March 2022
China’s zero Covid policy, meaning the enforcement of lockdowns even with the slightest increase of corona cases, will probably have a long-term impact on the supply chain. As a result, container availability will decrease, and rates will likely rise again after a period of decrease and stability.
One of the latest lockdowns imposed by the Chinese government is in the industrial city of Shenyang, counting 9 million inhabitants. China is dealing with several outbreaks due to the advance of omikron and, consequently, cities, production sites, and factories go into or out of lockdowns.
The pick of Covid cases and lockdowns comes in a pretty critical period. As Container xChange explains, “this time of the year is crucial for most companies as they begin to ship fresh production in preparation of the early peak season. Lockdowns in China will not just be a production slowdown, but also a slowdown of cargo movement, both being detrimental to the supply chain.”
Reduced rail freight worsens things
“Lockdowns in China will further reduce capacity and cause a surge in already inflated shipping prices”, said CEO Container xChange. Combined with the already disrupted Eurasian supply chain due to the war in Ukraine and the sanctions imposed on Russia, lockdowns increase pressure and threaten the fragile balance in global transport.
“In the immediate future, the diversion of the capacity of the Asia-Europe railway (which only accounts for roughly 2,5 percent of Asia-Europe cargo) will cause the high-value cargo to be pushed to ocean freight which is already tight in capacity. This will put more pressure on the already struggling supply chain”, added Container xChange.
Container prices on the rise again
In late October, the average price for a 40-foot high cube container in China had decreased by 22 percent. The reduced price came at a good time, between China’s Golden Week holiday and Christmas. Before that, container prices had reached record levels, with a container (40’ high cube) costing 8,516 US dollars.
Between February and March, average container prices have declined between 12-18 percent at the Chinese ports of Shenzhen, Qingdao and Ningbo, informs Container xChange. However, this trend is set to change. So far, the impact on average container prices is limited. Going by how the average prices developed last year after the Ningbo port shut down (July –August 2021), we expect the prices to increase in the long run. These average prices will decline for a few days or weeks as these ports in China experience restricted exports while still importing. Once the Chinese ports fully resume operations, there will be pressure to deliver more containers, leading to a rise in average container prices in the next few months as the industry inches closer to the pre-peak season.