Heavy cranes in the port of Ningbo in China.
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China closed a key terminal in its port of Ningbo-Zhoushan, the world’s third largest port, after a worker was discovered to be infected with Covid – a move that is likely to put further pressure on already congested utility networks.
It was the second time this year that the country ceased operations at one of its major ports.
Analysts say China’s “zero tolerance” approach to Covid will tighten already stressed supply chains this year. Some warn that this may not be the last port closure as long as Beijing takes this stance.
Dawn Tiura, CEO of the Sourcing Industry Group – an association for the procurement and procurement industry, said China’s stance will lead to “serious” ramifications for the supply chain.
“China has zero tolerance for COVID. One person who tests positive is enough to close (the) port, ”she told CNBC in an email.
Ningbo-Zhoushan is the third largest container volume in the world. According to the World Shipping Council, 27.49 million 20-foot equivalent units (TEU) of container handling were handled in 2019. The container volume rose in 2020 by almost 5% to 28.72 million TEU.
As long as the authorities adhere to this “zero covid” stance, there is still a risk of sudden disruptions due to tests or bans …
Economist Intelligence Unit
All incoming and outgoing services at the Meishan Terminal at the port of Zhoushan were suspended until further notice on Wednesday, according to Chinese state media. The terminal is the key to processing shipments to Europe and North America.
The supply chains have already been severely disrupted this year by crises such as the shortage of shipping containers and the incident in the Suez Canal. In June, Covid infections sparked disruption at shipping hubs in southern China, including major ports in Shenzhen and Guangzhou – the first time China has shut down ports due to Covid cases.
Effects of China’s “zero covid” stance
China’s zero tolerance for Covid suggests this latest port disruption may not be the last, said Nick Marro, head of global trade at the Economist Intelligence Unit.
“China’s ‘zero-covid’ approach means officials will prioritize containment of the pandemic above all else, especially given the highly contagious nature of the Delta tribe and the risks the current outbreak poses to future economic performance in the third quarter “He said in a note on Wednesday.
“As long as the authorities maintain this ‘zero covid’ stance, there is still a risk of sudden interference from tests or bans, which ties all hopes of normalcy closely to factors such as national vaccination deadlines,” he added.
China is experiencing a resurgence of Covid cases due to the highly transferable Delta variant. The daily cases exceeded the 140 mark on Monday – the highest number of daily infections since January, according to Reuters. The Chinese authorities have ordered mass tests in some areas and wide-ranging restrictions on movement in major cities such as Beijing.
The suspension of services at the Meishan Terminal comes as container shipping rates continue to rise this year. The container freight rates from China and East Asia to the west coast of North America have risen by over 270% to over 15,800 USD per TEU this year, according to the global container freight index from Freightos Baltic. Meanwhile, rates on the east coast have risen by over 220% to over USD 17,500 per TEU, according to the index.
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Analysts warn of further delays and consumers will likely have to bear the cost as the holiday season approaches.
Tiura pointed out that the June Covid outbreak caused Shenzhen’s main Yantian terminal to cut 70% of its exports. The waiting time for processing shipments has been tripled from 3 days to 8 or 9 days.
Given that Ningbo-Zhoushan is the third largest container port in the world, this closure makes the already dire situation much worse.
CEO, Sourcing Industry Group
“If we see something similar here, and the time it takes to move ships through port doubles or triples, we will have a significant and long-term impact on exports that will impact the holiday season and drive inflation,” she said.
“The shortage of containers was already affecting global supply chains. Given that Ningbo-Zhoushan is the third largest container port in the world, this closure will make an already dire situation much worse, ”said Tiura.
She said container capacity is likely to become more expensive and shippers are likely to pass the cost on to consumers, further fueling global inflation ahead of the all-important holiday season.
Mario Ciabarra, CEO of data analytics company Quantum Metric, said retailers will face a lot of uncertainty before the holiday season and one of them will be inventory challenges.
“Inventories will be the primary concern of retailers as they face the decision to either have limited or no stocks of certain items, or instead face higher costs associated with air freight,” she told CNBC.
Marro from the EIU also pointed out disruptions that are exacerbated by the key demand before the Christmas season.
“Trade disruptions pose problems not only to shipping and consumers, but also to manufacturers who rely on critical import components,” he said.
– CNBC’s Iris Wang contributed to this report.