On January 14, 2022, the Port of Ningbo – the third busiest in China after Shenzhen and Shanghai – resumed full operations after being partially closed for 14 days. Operations in several warehouses and depots had been suspended and trucking services ordered to operate at a reduced capacity after several people were confirmed to have COVID-19 in an area nearby.
This wasn’t the first time COVID-19 had impacted operations at the port, nor is it the only port that has been affected by COVID-19 lockdowns. In August 2021, the Meishan terminal of the Port of Ningbo was shut down for two weeks, just a few months after the Yantian port in Shenzhen had finally reopened after portions of it were shut down in early June.
China’s hardline ‘zero-tolerance’ policy toward COVID-19 means that measures that would be considered drastic elsewhere are often taken when only a few cases are detected.
The reopening of the Port of Ningbo came as a sigh of relief for importers and exporters who were getting ready for the upcoming Chinese New Year period, one of the busiest of the year. The sporadic shutdowns have led to discussions about the pressure it places on already strained supply chains, and whether, as ports are reopened, congestion and backlogs can be processed and alleviated. However, there’s a lot more going on in both the domestic and global supply chain than China port closures.
In this article, we discuss the different factors contributing to the global supply chain disruption and discuss the impact it has had on global trade and shipping. Finally, we take a look at whether more China port closures are likely and when supply chain woes are expected to ease.
The current supply chain bottlenecks are undeniably a result of the COVID-19 pandemic. The initial lockdowns in China in early 2020 saw factories across the country suddenly halt production or operate at significantly reduced capacity.
The subsequent lockdowns around the world initially decimated consumer spending in much of the developed world, putting a sudden break on demand. With factories closed in China and consumers tightening their belts overseas, global trade stalled, and Chinese imports and exports in Q1 2020 contracted by 6.7 percent, with exports falling 11.4 percent.
By Q2 2020, trade had begun to recover as people locked in their homes in other countries began to spend on e-commerce, and factories in China gradually began to reopen. By June 2020, imports and exports were back up to 5.1 percent growth.
However, this sudden increase in consumption quickly led to an imbalance in supply and demand and overwhelmed logistics infrastructure. Labor shortages due to the pandemic meant reduced capacity at ports, which in turn created bottlenecks as ships unable to berth sat idle or were rerouted to other ports of entry. Understaffed logistics centers were unable to arrange enough drivers for trucks to move the goods out – further clogging up ports with ships that could not be unloaded.
Slow shipments and high shipping costs
The logistics bottlenecks have led to long delays for shipments and significantly slowed average shipping times. According to the online international freight marketplace Freightos, shipping times between China and the US were 85 percent longer than in 2019, taking an average of 80 days to reach its destination.
Another consequence of the supply bottleneck is a severe shortage of shipping containers. Fierce competition between companies to lease or purchase containers has driven up the costs of containers and freight services. In August 2021, the rate for container shipping between the US and China surpassed US$20,000.
Although rates have cooled in the subsequent months, freight rates from Shanghai to New York remain at US$13,987 per 40 feet (about 12 meters) container as of January 20, 2022, a 115 percent increase from the previous year, according to data from maritime and shipping consultancy Drewry.
The rates and slow shipments are expected to continue to rise amid increased demand in the days leading up to Chinese New Year. Shipments at the Yantian port in Shenzhen are delayed for an average of seven days, according to reports, due to an increase in shipments prior to Chinese New Year and COVID-19-induced labor shortages at foreign ports, particularly in the US.
The high cost of freight containers is partly to blame for the skyrocketing prices of raw materials, impacting Chinese manufacturers of everything from toys to car batteries. This in turn is further driving inflation in economies around the world, as the high costs get offloaded to end consumers.
One such raw material is lithium carbonate, which is a critical component for the production of batteries for electric vehicles (EVs). China’s lithium prices in December 2021 had increased by 485.8 percent compared to the same period in 2020, exceeding US$40 per kilogram for the first time, according to Benchmark Mineral Intelligence (BMI). This is expected to increase the price of EVs in 2022.
China’s COVID-19 outbreaks have also forced the closure of factories across the country, further impacting supply chains and contributing to the slowing economy in the latter half of 2021. Outbreaks of the Delta variant over the summer of 2021 led to factory closures in cities such as Nanjing, which was one of the centers of the outbreak.
More recently, an outbreak in Zhejiang province in December 2021 (which also prompted the partial Ningbo port closure) led to the closure of several factories in cities including Ningbo and Shaoxing, many of which are key exporters.
More recently, factories belonging to Volkswagen and Toyota in Tianjin had to halt production in early January 2022 following an outbreak of the Omicron variant.
Although not the only factor, the unpredictable nature of the COVID-19 outbreaks and strict policies to contain them has contributed to a slowdown in manufacturing output in the second half of 2021. Production output slowed to just 3.1 percent year-over-year growth in September 2021, down from 5.3 percent in August. By December 2021, growth had recovered to 4.3 percent year-over-year. However, the high likelihood of sustained supply chain bottlenecks and further COVID-19 outbreaks means the outlook for the coming months is uncertain.
