Operations at Ningbo port have resumed, after being closed for 2 weeks due to a dock worker testing positive for Covid-19. If you didn’t know, Ningbo-Zhoushan port is the third busiest in the world. This is an extraordinary demonstration of the power of the Covid-19 pandemic. According to Nick Marro of the Economic Intelligence unit, this could be a future pattern of strict responses. Therefore, China’s shipping industry could be cautious in anticipating further disruptions for that reason.
This is not just a problem for the shipping industry in terms of carriers and ports. It also has an impact on the consumer who ultimately buys the cargo. According to Dawn Tiura, CEO of the Supply Industry Group, shippers and ports are likely to have an impact on rising consumer costs by increasing prices. It is important to understand the how and why of these circumstances.
Origins of the new case and its implications for China’s maritime transport
The origin of this strict response is the devastating effect of the Covid-19 pandemic that has shut down many economies for almost 2 years. The shipping industry was significantly affected by the application of social distancing measures, as well as the death or illness of staff members. There were shortages and all kinds of logistical challenges. Any case of Covid-19 could spell disaster, so authorities have good reason to be cautious.
However, any delays and price increases could exacerbate an already bloated economic situation. Many of the closings occurred just before the holiday season began. Such strict responses led to significant difficulties in getting the products to the intended buyers through China ocean freight.
China has a history of aggressively intervening to prevent further infections, as it has suspended operations at other key ports. This is why some analysts call this a zero tolerance approach for Covid-19.
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What does this tell us about the attitude of China’s shipping to the pandemic?
China is nervous about a single positive case of Covid-19 given the virus’s propensity to spread like wildfire. The shipping industry is already struggling with operational challenges that are compounded by port closures. Aside from the Suez Canal incident, there has been an insidious shortage of containers. Southern China has been severely weakened by the pandemic, especially in the key ports of Guangzhou and Shenzhen. Although this is the first time that the suspension is directly related to a Covid-19 infection, there have been other previous interruptions.
Experts argue that China has deliberately prioritized pandemic mitigation over operational efficiency, especially with fears surrounding the spread of the Delta strain of the virus. There is a price to pay economically and the performance of the 3rd Quarter of 2021 is not expected to be encouraging. Meanwhile, the industry is nervous, hoping that any infection will lead to a total shutdown. The much-needed normalcy that the industry has yearned for for months seems like a pipe dream.
China has been struggling with the resurgence of an infection that was deemed under control a few months ago. The transmittable Delta variant has been blamed. Reuters reports that China is currently experiencing the highest daily count of infections since January 2021. In response, China has organized a massive testing program in key areas.
Is shipping in China an industry in perpetual crisis?
The backdrop to all of this is an industry that is struggling with the effects and aftermath of Covid-19. Container shipping rates are increasing due to increased demand from North America and a new propensity for online shopping that always meets social distancing. Rates for cargo from China and East Asia destined for the West Coast of North America are estimated to have increased by 270%. Similarly, rates to the east coast increased 220% with average quotes of $ 17,500 per TEU.
Investors are concerned about the impact on their portfolio. Therefore, China stocks are falling even if some investors are taking the opportunity to buy short at these low rates. Meanwhile, operations continue to stutter from crisis to crisis. In June, the Yantian terminal in Shenzhen saw a 70% drop in exports, while processing times increased from 3 to 9 days.
The implications for the shipping industry and international trade
The shipping industry is needed more than ever to address the transition to online shopping, which appears to remain a major source of commerce following social distancing mandates during the Covid-19 pandemic. At the same time, ports and carriers are struggling to keep up due to the various obstacles in their way. The expensive and limited capacity is bound to produce high prices.
Meanwhile, the retail industry must carefully manage its inventory during these uncertain times. Some are limiting or understocking certain items that are not current priorities. This reduces consumer options and could end up alienating the very people the industry needs to survive. Manufacturers that rely on the shipping industry for critical components are equally concerned about their supply chains.
A single case of Covid-19 was enough to close the port of Zhoushan in China. This is a cautious response that will surely be replicated if other Covid-19 cases emerge. China does not want to repeat the rapid spread of Covid-19 through negligence or belated action. At the same time, industry experts are also concerned that the disruption of services will lead to shortages and increase rates, which will eventually translate into higher prices for consumers.