How covid created massive port congestion in Shanghai with global effects

The Chinese metropolis is not only a global financial center but also the home of one of the most important international cargo ports. For the last ten years, it has been the largest port in the world in terms of cargo handling. In 2021, the port of Shanghai accounted for 17% of container traffic and 27% of China’s exports.

However, the confinement to which the city is subjected makes it difficult for trucks to arrive and take goods to other locations or distribute them to nearby factories. As a result, many industries, such as Volkswagen and Tesla, had to stop their activities. Under these circumstances, port congestion in Shanghai is almost inevitable.

“These restrictions affect roads in and out of the port, resulting in a backlog of containers and a 30% reduction in productivity,” explains Mike Kerly, investment manager at Janus Henderson.

Added to this is the lack of port staff to process documents necessary for vessels to unload their goods or carry out departure inspections.

Ships are now waiting in increasingly long lines on the shore and in the harbor’s canals for a green light to dock.

Data from consultancy VesselsValue demonstrates how waiting times for tankers, bulk carriers, and cargo ships have increased.

Another problem is that thousands of containers are piling up at the port, putting the global supply chain in jeopardy precisely when analysts were confident of its recovery from the pandemic.

Check below a comparison of Brazil-China exports and imports of containers in the last three years. The data is from DataLiner:

Container Exports to China | Jan. 2020 – Feb. 2022 | TEU

Source: DataLiner (click here to request a demo)

Container Imports from China | Jan. 2020 – Feb. 2022 | TEU

Source: DataLiner (click here to request a demo)

Although the port remains operational, it is increasingly clogged.

The European Union Chamber of Commerce estimated that 40% to 50% fewer trucks are available in Shanghai and that less than 30% of the Shanghai workforce can return to work. In addition, the measures imposed by China to fight the new wave of covid determine that everyone diagnosed with the disease must be quarantined even if they do not show symptoms.

A large part is quarantined in centralized facilities, where many people complain of poor conditions.

Washing machines, vacuum cleaners, and clothing

The main products exported by Shanghai include washing machines, vacuum cleaners, solar panels, electronic components, and textiles.

“Temporary shortages if these products may become apparent as export via Shanghai represents 30-50% of total Chinese exports of these products,” said Kerley of Janus Henderson.

Ocean Network Express, a Japanese shipping company, has warned customers that containers are piling up at the port of Shanghai.

“The situation has not improved since our last update on April 6. Road transportation remains limited, and terminals are still congested, while the refrigerated zone connection capacity remains very strained,” the company said in a statement.

The world’s largest shipping company Maersk also issued a statement this week saying “several ships will skip the port of Shanghai on their routes” due to the lack of available container space there.

The global consequences of port congestion in Shanghai are strained supply chains, a slow flow of imports, and rising inflation.

“There is widespread concern that China’s exports may suffer due to the inflationary impact on the rest of the world, notably Latin America, which is a significant trading partner of China,” says García-Herrero, chief economist for Asia-Pacific at investment bank Natixis.

“Since port capacity is not the same as in March or February, it will take time to address all. So even if the city lockdown ends tomorrow, there is a capacity buildup that will take time to resolve,” Rodrigo Zeidan, professor of economics and finance at NYU Shanghai, tells BBC News Mundo, the BBC’s Spanish service.

“Inflation will continue for a while. Prices for many goods will take some time to stabilize,” adds Zeidan. Bank of America analysts believe the most severe impact will likely be seen in late April.

“While authorities have already identified the issues and begun to take measures, it is likely that the (supply chain) disruptions will extend globally within 3-6 weeks and last at least through the end of the second quarter,” notified the bank in a statement.

What will happen in Latin America

The effect in Latin America may have two facets, Zeidán believes.

The first one might be seen in terms of economic productivity, he says, because even with enough demand from China to import all the raw materials it usually purchases from Latin America, shipments will not be easy to make.

“This is already happening. Shipping rates have been getting insanely high for a long time, and prices are going up.”

And second, inflation will go up a little more.

However, several experts consulted believe that, given the importance of the port of Shanghai to China’s trade, restrictions are unlikely to last long. Instead, they say the Chinese government is most likely to do its best to get back to normalcy as quickly as possible.

For Zeidan, the situation should only improve in mid-May.

Source: G1

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https://g1.globo.com/economia/noticia/2022/04/24/como-a-covid-criou-um-congestionamento-gigantesco-no-porto-de-xangai-que-afeta-o-mundo-inteiro.ghtml