MARKET UPDATE – March 2022
As many areas throughout the world begin to fully reopen for international travel, all eyes are on China’s plan to cope with the largest COVID-19 outbreaks the country has faced since the early days of the pandemic during the beginning of 2020. Many supply chain professionals are worried the recent lockdowns in China could cause another round of supply chain chaos we witnessed during the Yantian Port closure in Shenzhen last May and undo the progress the U.S. ports have made in clearing backlog of anchored ships. In our March Market Update, we discuss the latest lockdown in China and its impacts to the supply chain.
Shanghai Divided in Half for Phased Lockdowns
Following the 7-day lockdown in Shenzhen from March 14 – 20, Shanghai, the financial hub of China and home to the world’s largest container shipping port, initiated a two phased lockdown to conduct mass testing. The greater Pudong area, home to 11,000,000 people was scheduled to close from March 28 – 31 for the first phase of the lockdown, followed by the closure of Puxi, home to 14,000,000 people, from April 1 – 5 as the government completes two rounds of PCR testing on the entire population of 25,000,000 people. During the lockdown period, all businesses including warehouses and manufacturers were ordered to close while trucking availability will be severely restricted due to driver quarantines, local traffic control and factory closures, with these factors contributing to the delay of the timely delivery of orders. Some businesses have elected to remain open under the closed loop provision which allows operations to continue if workers remain at the facility for the extent of the lockdown.
However, while the recent lockdowns have sparked fears of a nightmare similar to the disruption we witnessed in South China last year, industry experts do not expect the subsequent impacts to be as severe as the Yantian port closure, assuming the lockdown in Pudong ends as planned and is not extended beyond the current March 31st target. Unlike the closure in Yantian, where the West Port area completely suspended vessel loading and discharging, Shanghai Port is still maintaining operations. Although container pick-up and delivery will be impacted by factory closures and road use restrictions that will certainly reduce the arrivals of new cargo at the ports, the terminals are still shipping the backlog of previously delivered cargo along with any new freight for loading on scheduled vessel departures which have not been delayed or cancelled. We foresee there will be a significant drop in product availability and port output from Shanghai in the coming week due to halted manufacturing activities, suspended CFS operations, and trucking disruptions. While ocean carriers have not announced any blank sailings at Shanghai yet, some volume will be shifted to Ningbo which will add pressure on the port productivity. We are seeing some exporters using feeder or sea-rail services to divert cargo from Shanghai to Ningbo to avoid road closures and detours. On the destination side, ports in North America and North Europe may catch a breath in the coming weeks thanks to fewer incoming containers from China before bracing for another volume increase when China re-opens.
In addition, the market conditions today and at the time of the Yantian port closure are different as new capacity has been added to accommodate strong volume growth. According to the latest industry data, the deployed weekly capacity on transpacific trade following the Chinese New Year period has increased to over 363,000 TEU in 2022, up 20% year-on-year. On the other hand, post-CNY capacity for Asia-North America East Coast also increased by 40% from 163,000 TEU in 2021 to 263,000 TEU this year. The increase in ocean capacity supply could also help reduce the impact of port closure this time around.
Although Shanghai accounts for roughly 1.8% of the total 1.4 billion population in China, its contribution to the total GDP in China amounts to 3.8%. Natixis SA estimates that COVID controls in place throughout China will cut the first quarter growth rate in China by 1.8 percentage points. Researchers at Chinese University of Hong Kong estimate that a strict lockdown in Shanghai alone could reduce China’s real GDP by 4% for the duration of the curbs, which along with other contributing factors will make the government’s target of 5.5% growth difficult to achieve. Among concerns facing China are the more than 200 million elderly citizens who are more susceptible to serious complications and fatalities resulting from COVID infections, making any move to deviate from the current zero-Covid policy a difficult decision.
As always, Century remains committed to your supply chain operations and we aim to provide you with as much clarity into the situation as possible. Please click here to view our latest comprehensive summary of the COVID-19 situation in China. We will continue to closely monitor the situation and communicate further updates as the situation develops. Your Century Account Managers or Sales representatives remain at your disposal to work with you to identity mitigating solutions in times of supply chain disruption.
NEW AT CENTURY
At Century, we are committed to achieving net zero supply chain emissions together with our customers. We are delighted to share Century has joined the Smart Freight Center, a global non-profit organization dedicated to sustainable freight, in achieving two of their key initiatives including GLEC, and Clean Cargo to help our customers reduce greenhouse gas emissions. We invite you to visit our rebranded Sustainability webpage where you can find more information on how our sustainability efforts and business practices contribute to the goals of the UN Global Compact.
- Eastbound transpacific freight rates remain largely consistent at an elevated level. On the spot market, ex-China rates are at $11,649 to USWC and $15,185 to USEC, while ex-East Asia rates are at $17,852 and $24,761 to USWC and USEC respectively. Unlike the partial lockdown in Yantian last year which caused ocean freight rates to surge by 20%, the recent closures in Shenzhen and Shanghai have not further significantly pushed up freight rates. According to industry index which excludes premiums and surcharges, as of week 13, transpacific container rates for exports from East Asia/China to USWC remained at $15,811 or 168% higher as compared to the same period last year. As for the China/Asia-USEC freight rate, prices are at $17,638 per FEU, which represents an 205% YoY increase. Ocean carriers have announced GRIs ($1,000 for 40’ standard containers) effective April 1 for cargo from Asia to the United States and Canada and cargo from North America to the Black Sea region.
- The 1,096-foot container ship Ever Forward has remained stuck in the Chesapeake Bay since March 13, after leaving Port of Baltimore to the Port of Norfolk. Dredging efforts continue but specialists estimate it may take up to another week to get the vessel refloated. Authorities said while the Ever Forward is stranded, the vessel is not preventing other ships from transiting to the Port of Baltimore or causing traffic in the waterway. Century has already contacted customers with containers loaded on the Evergreen vessel.
- Taiwanese carrier Wan Hai will be expanding its Intra-Asia trade network by adding a new weekly string between South China, Vietnam, and India. Four 1,200-TEU vessels will be deployed for this new weekly loop named CI7 with the first voyage set to sail on March 27. The port rotation is as follows: Haiphong – Zhanjiang – Nansha – Cat Lai – Port Klang – Chennai – Vizag – Port Klang – Haiphong.
- MSC will launch a new service connecting the Baltic region and the U.S. East coast. This service will provide direct connection between the two regions and thus reduce the need for transshipping via a feeder vessel to Germany. Under this new direct service, transit time from Klaipeda, Lithuania and Gothenburg, Sweden, to New York will only take 15 and 11 days, respectively, with no transshipment required.
- Traffic outside the Port of Charleston remains an issue. As of week 11, the estimated vessel waiting time is about 10 days. The South Carolina Ports Authority said it will stop providing forecasts for when the vessel backlog at anchor will be cleared due to factors beyond its control. The port had initially estimated it would clear the congestion by late February before revising the timeline twice with the latest projection being late April.
- Despite tightened COVID-19 measures, maritime ports in Shenzhen and Nansha continue to operate as usual. Currently, SCT, CCT, and MCT in Shekou Port are maintaining the acceptance of outbound laden containers four days prior to vessel ETB. Some carriers have announced port omissions on several services at Shekou and Yantian to protect overall schedule integrity.
- The improved cargo fluidity at the ports of Los Angeles and Long Beach has halved the number of vessels at anchor to below 50. Currently, the estimated waiting time at LA terminals has fallen to approximately 3.1 days. The twin ports have further delayed the assessment of emergency fees for idling containers until April 1.
- Major gateways in North Europe such as Rotterdam, Antwerp, and Hamburg continue to suffer from high yard density. Sanctioned Russian cargo is partly responsible for the higher yard utilization as containers enroute to Russia are being held at these transshipment ports until further notice. Major ocean carriers including Maersk, CMA CGM, MSC, Hapag-Lloyd have halted all bookings to/from Russia from late February after Russia invaded Ukraine.
Please refer to the below illustration of Century’s assessment of the operating status at the major origin ports throughout Asia.
- The Harbor Commissions of Los Angeles and Long Beach have implemented a Clean Truck Fund (CFT) that will go into effect April 1, with the aim of generating funds to accelerate the deployment of clean trucks to support of the ports’ sustainability efforts. The charges will be $10 per 20’ container and $20 per 40’ (or longer) container. Click here to view our recent client advisory for details.
- Cross-border tucking between Hong Kong and China remains limited due to trucker shortage caused by quarantine and daily COVID-testing requirements. There has been a cut of 70% available trucking capacity.
- The Canadian Pacific (CP) Railway work stoppage has ended on March 22, after CP and the Teamsters Canada Rail Conference (TCRC), a labor unition representing 3,000 CP workers reached an agreement to return to work. The supply for commodities such as fertilizer, which is primarily moved by rail, has returned to normal.
- Equipment availability remains low throughout Asia due to the slow circulation of containers. Our local teams in APAC have reported a continuing deficit of 40’HC and 40’ HQ containers, which is particularly severe in Bangladesh, Sri Lanka, Vietnam, and Ningbo, China.
ASIA PACIFIC LOCAL UPDATE
- In view of the deepened economic crisis and fuel shortages in Sri Lanka, the island country has announced a nationwide 13-hour daily power cut from March 31. Electricity supply will be restricted on a sporadic and rotating basis amongst different regions. The current situation is caused by the sharp depreciation of the Sri Lankan rupee against the US dollar. The tightened foreign exchange market has led to a major disruption to the land transportation in the country, resulting in containers building up at Colombo Port. Currently, the vessel berthing waiting time is about 2 days in Colombo.
TRADE & ECONOMIC HIGHLIGHTS
- The U.S. Trade Representative (USTR) announced on March 23 that the agency will reinstate certain previously granted and extended product exclusions in the China Section 301 Investigation. The exclusions will be applied effective October 12, 2021 and remain valid through the end of 2022. The U.S. Customs and Border Protection has not yet issued instructions on entry guidance and implementation. Please click here to view the full list of exclusions.
Besides our suite of tools in VMS® that power your supply chains every day, the following solutions we offer also provide you with alternatives to maximize the efficiency in your supply chain operations and mitigate the ongoing industry challenges.
- Century Express – Century Express holds contracts with multiple ocean carriers and helps you realize schedule flexibility for your shipments. With Century Express as your NVOCC partner, you will have complete visibility to your shipments in VMS® as our NVOCC division leverages VMS® as the operating platform. We also consolidate NVOCC invoicing with your existing invoicing, keeping the number of documents issued for multiples services transparent and at a minimum.
- Warehouse Storage – Besides the normal CFS cargo flow through our warehouse network, we can also work with you to take on dedicated storage space to accept vendor deliveries based on their production schedules. This can help to alleviate pressure at vendor facilities while also ensuring that your cargo can be dispatched as soon as carrier space becomes available.
- Value-added Services – The wide range of value-added services we provide at origin CFS, such as pick and pack, consolidation, labeling, and palletization, gives you a one stop solution for greater supply chain efficiency. Century can build direct store loads from our Asia CFS facilities to bypass transloads/DCs and streamline inbound delivery.
- Origin Trucking Solution – With support from your carriers, we are able to arrange trucking to alternate ports where carrier space is more readily available, allowing for greater flexibility in space planning to achieve forecasted departure dates.
- Destination Services – Our physical network in North America extends beyond the primary shipping hubs in California. Our coverage in the Pacific Northwest and the East Coast gives you alternative storage and transload options, as well as other destination services such as pick and pack and cross-dock services throughout the United States and Canada.
Talk to your Century Account Manager or contact a sales representative today to understand how we can develop a customized solution to meet your supply chain needs! We will continue to work together with your logistics teams to navigate these unique shipping times through every step in the supply chain.
Disclaimer: The information contained in this newsletter was provided by our partners across Asia and referenced from online sources that were not specifically authorized for third-party usage. The aim of this publication is for informational purposes only. While Century endeavors to validate the authenticity of the stipulated information, Century is not responsible for its accuracy and completeness and does not accept liability or responsibility for any actions taken upon reliance.
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