Covid-driven shutdowns in China need careful monitoring by U.S. ports and supply chains

Recent developments in China related to the uptick in Omicron variant infections appear to be shaping up to have a significant downstream impact on United States-bound import patterns, at a time when the ongoing supply chain congestion issues appeared to be showing signs of improvement.

That was made clear in a recent New York Times report, which observed that Chinese officials are “imposing lockdowns and restrictions that are adding chaos to global supply chains,” coupled with China’s zero-Covid policy, with many of China’s largest industrial cities fighting outbreaks, which are impacting its factory and transportation networks, referred to as the backbone of both China’s manufacturing, as well as the global economy.  

What’s more, the report noted that since Omicron infections have picked up in China, a number of cities with major manufacturing operations and presences have closed down, including: Dongguan and Shenzhen in southern China near Hong Kong, where Foxconn has huge factories to make iPhones and other Apple products; Changchun and Jilin City in Jilin Province; and Langfang, next to Beijing. And it added that some smaller cities have also gone into lockdowns, like Suifenhe and Manzhouli on China’s border with Russia.       

Data from Chicago-based Fourkites, a provider of real-time tracking and visibility solutions across transportation modes and digital platforms, highlighted some of the impacts of China’s lockdown on ocean freight volume in Shenzen, China.

The company’s data showed that In Guangdong Province, where the City of Shenzhen is located), the seven-day average ocean load volume for both imports and exports is down 43% since March 1, adding that on March 17th, the seven-day average load volume was down 39% week-over-week.

As for dwell times, FourKites said that dwell times at the Port of Shenzhen remain stable, hovering around 8.3 days for exports and 5.1 days for imports, though dwell times will likely increase over the coming days as throughput decreases.

“Shenzhen is the second-busiest port next to Shanghai, so we will expect to see significant volume shift to the other ports within China,” said Ryan Closser, Director of Network Collaboration at FourKites. “This will increase potential dwell, suboptimal routing, as well as increased inland costs to move freight to a port further away from the manufacturing point. With regard to navigating the current situation, I would advise [shippers] to route the goods that are urgent to alternative ports, and monitor the re-opening of the port to guide any relief. The fact is, shipments bound for the US are likely to sit on the ships for a while anyway, so a couple more weeks of shutdown may not have a huge disruption, but the longer the area is shutdown the more ripple effect it will have.”

San Francisco-based freight forwarding and customs brokerage services provider also offered up some guidance for shippers related to this current situation in a market update.

With the Covid outbreaks in China and subsequent lockdown and restriction measures disrupting production and trade activity in Southern (Shenzhen/Dongguan) and Eastern (Shanghai) regions, Flexport said ocean carriers are assessing impacts to bookings and have not yet announced any blank sailings.  

“Additional volatility drivers in the market remain: severe congestion, equipment imbalances, sliding vessel schedules, port omissions, blank sailings, and increased fuel charges,” it said. “The moving market remains primarily at premium levels with some pockets and routings open for FAK (freight all kinds).”

Not surprisingly, Flexport noted that rate levels remain elevated, with the premium market strong and space at critical levels and severe under-capacity, too. It told shippers it is key to:  book at least three-to-four weeks prior to the cargo ready date; consider premium options; be flexible in regard to equipment and routings; and to check closely with suppliers to understand any Covid-related impacts or changes to production outputs and forecasts.

From a port perspective, Port of Los Angeles Executive Director said on a media conference call last week that China’s zero-Covid policy could see slowdowns in ports and supply chains as well as factories, which he said are equally-important.

“We are going to be watching this closely and see what kind of traffic patterns, energy consumption, and pollution looks like to see how quickly factories can ramp back up if they are forced to close down for short periods of time,” he said.