Lockdown has damaging effects on cargo freight in China

The congestion of vessels and cargo in various Chinese ports is increasing again, also leading to hikes in cargo freight rates in China. Concerns about supply chain problems such as those are reappearing at a moment when businesses worldwide began reaping the benefits of shortened lead times.

While major ports in Shenzhen and Shanghai reported regular operations, logistics service providers reported trucking delays due to road restrictions and massive testing. Besides, several firms in Shenzhen are refusing supplies to their warehouses.

Refinitiv data shows the increase in container congestion observed in major Chinese shipping hubs. For example, the number of ships in line waiting to dock at the outer berths of the Yangtze Estuary, the Pearl River Delta, and the ports of Zhoushan and Qingdao is more than double the March 2021 average.

Last Tuesday, China saw a sharp hike in new Covid-19 infections, with more than twice as many new cases as a day earlier, reaching the highest level in two years and raising concerns about the costs of containing the disease. A total of 3,507 confirmed domestically transmitted cases were reported on Monday in more than a dozen provinces and municipalities, up from 1,337 the previous day, informed the National Health Commission.

A Covid-19 prediction model from the University of Lanzhou in northwest China indicates that the current wave of infections will only be brought under control in early April, with a cumulative total of about 35,000 cases. Chinese officials are trying to contain the country’s worst Covid-19 outbreak in two years, putting millions of people on lockdown, restricting transport, and closing factories.

Some of the harshest measures were applied in the industrial centers of Shenzhen, Dongguan, and Changchun. Shanghai, China’s financial center and home to the world’s busiest container port, has encouraged companies to allow staff to work from home but rejects the need for a lockdown for the time being.

Although there are no signs of severe disruption, port managers have declared restrictions on face-to-face interaction with shippers and sailors.

“The Shenzhen lockdown increases the risk of significant disruptions to the supply chain,” said Rajiv Biswas, chief of Asia economics at IHS Markit. The risk of global disruptions “will increase if authorities in Shanghai also decide to impose a lockdown.”

According to Stephanie Loomis, vice president of international procurement at shipping agency CargoTrans, the global impact of a COVID-19 stoppage in China might be comparable to what happened last year when a container cargo ship blocked the Suez Canal.

“Disease outbreaks pose a risk to China’s economy, at least for the next few months,” said Zhiwei Zhang, an economist at Pinpoint Asset Management. “A slowdown in the Chinese economy would exacerbate the risk of stagflation and problems in global supply chains.”

According to the ANZ bank, a week-long lockdown in impacted areas may limit Chinese GDP growth by up to 0.8 percentage points. Furthermore, according to the bank, if more cities implement lockdowns to restrict Covid-19, half of China’s GDP and population could be affected.

For Morgan Stanley, China’s economy is unlikely to grow in the first quarter compared to the previous one. As a result, the firm decreased its 2022 forecast to 5.1%, with Beijing “doubling” its bet on covid-zero policy.

Source: Valor Econômico

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