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How the worst-ever COVID outbreak in China is creating disruptions in the supply chain

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After almost a negligible impact on the container prices and leasing rates due to the Russian invasion of Ukraine, the global shipping industry and supply chain has nearly dodged a major downward spiral. However, the announcement of a strict lockdown following the rising coronavirus cases in China, including in economic powerhouses Shenzhen and Shanghai, stir up the industry’s fear of yet another turmoil waiting to knock down the global shipping industry and supply chain by impeding the flow of container movement.

Currently undergoing the most severe outbreak of the virus ever since the initial wave of 2020, the Chinese government has doubled down on its “zero-COVID tolerance policy”, and is prompting local governments to impose stringent prevention measures, including lockdowns.

Also Read: China Zero-COVID policy to have prolonged impact on global supply chain: GlobalData

Before the recent outbreak, at the port of Ningbo, average prices for a 40 feet high cube container fell by 10% approximately from $5930 on 14 February to $5329 on 27 February. As of 10 March, these prices stood at $5248. Similarly, average prices fell by 10-15% at the ports of Shanghai, Qingdao, and Shenzhen till 11 March. Shenzhen witnessed a drop of 8% in the past two weeks, according to data from Container xChange.

However, the lockdowns imposed in Shenzhen, Zhejiang, Shanghai, Jilin, Suzhou, Guangzhou, and Beijing following the outbreak has worried experts of inefficient cargo movement inside and out of the country.

The restrictions by the Chinese government will reduce capacity and cause a surge in already inflated shipping prices, and the shock waves will be felt across the US and America along with the rest of the world.”

~ Johannes Schlingmeier, co-founder and CEO of Container xChange

So far, the impact on container prices is limited. The average prices of containers have declined by an average of 10-15% since February for 20 feet dry containers. The average prices for 40 feet high cube containers have increased slightly at the port of Shanghai while declining at Ningbo and Qingdao since January up until the second week of March (see charts below).

As per the report by Container xChange, the closure of the Asia- European railway (which only accounts for roughly 2.5% of Asia-Europe cargo) will cause the high-value cargo to be pushed to ocean freight which is already low in capacity. This will put more pressure on the already struggling supply chain.  Adding on top of this, China’s lockdowns will be nothing less than a major shockwave to an already crippled supply chain.

China’s tech hub Shenzhen in the southern province of Guangdong entered a de facto lockdown for this week when three rounds of mass testing will be conducted. The local authorities ordered a halt on all non-essential industrial activities and public transport.

Until Monday, The Port of Shenzhen, the world’s fourth busiest in terms of container throughput and a key export hub for Chinese manufactured goods was still operating.

In Shanghai, local authorities have imposed lockdowns on entire neighbourhoods, closed schools, and restricted traffic in and out of the metropolis.

The Port of Shanghai, which is the world’s largest in terms of container throughput, is still operating as usual. Experts believe that the closing of the port will throw more supply chain disruptions to the global mix.

In fear of further lockdown, experts are looking at alternatives via other South China areas for now.

On the road to recovery, after two years of pandemic-related setbacks the supply chain industry is likely to witness a deteriorating situation due to Russia’s invasion of Ukraine and lockdowns in China, the report from Container xChange on Monday said warning supply chains to embrace for yet another turmoil in the coming months.

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