Shanghai COVID Scare Raises Spectre of Further Lockdown Disruption

13 Jul Shanghai COVID Scare Raises Spectre of Further Lockdown Disruption

With mass testing again underway, there are renewed fears that Shanghai could go back into lockdown and disrupt peak season.

It’s only been five weeks since the major port and manufacturing hub emerged from its two-month “zero-Covid” ordeal, and already several districts are undergoing mass testing again, from today until Thursday.

Officials say the measures are needed to avert another citywide lockdown, but critics claim mass testing has generally been the precursor to further restrictions in China, not the prevention.

Nevertheless, UBS Global Wealth Management said it expects “rolling mini-lockdowns” for the rest of the year, which would be “less disruptive to supply chains”.

The lockdown threat is not limited to Shanghai. According to Bloomberg, up to 30m people in China are currently under some form of Covid restrictions, with the current hot spots being Henan province and the South China port city of Guangzhou, which is also carrying out mass testing again.

The latest Covid scare comes at a time when China’s ports and supply chains are already under pressure.

Zencargo said: “Although the rise in cases has not yet impacted shipments, there is growing concern that local lockdowns in China will result in further congestion in already strained ports.

“In addition to restrictions, Chinese vessels have been affected by typhoons, impacting operations in Ningbo, Shenzhen and Hong Kong, and resulting in fewer vessels berthing.”

Indeed, the forwarder said the average waiting time for vessels to berth at Shanghai was up from 12 to 24 hours, and that “most terminals” have severe congestion at Ningbo, due to the bad weather.

“There is potential for longer berthing times at Yantian for vessels arriving from high-risk ports due to Covid-testing requirements,” Zencargo added.

“Qingdao has also been impacted by fog and bad weather resulting in an average waiting time of 48 to 96 hours.”

Looking ahead, Zencargo said that, while rates have fallen due to vessel utilization dropping for “the first time in two years”, the trend could be short-lived.

“Peak season, expected in late July and August, could see worsening congestion leading to potential delayed or blank sailings,” the company explained. “This will put pressure on capacity and therefore rates are likely to increase.”

In the meantime, however, freight rates ex-China are continuing to slide downwards, according to some companies, reflecting a fundamental change in market conditions compared with this time last year.

Head of research Judah Levine said: “Baltic Index data shows that the current spot rate of $7,326 per 40ft container on the Asia-US West Coast lane is less than half the rate in the last week of April.”

Rates have continued to fall through June and into July, he added, even as Shanghai reopened, therefore a “drop in underlying demand was likely also a cause of falling rates in May and is the most likely culprit keeping rates declining since early June.

“That prices are continuing to fall while, this time last year, they were beginning their meteoric 80% peak season climb over the course of July, points to the different underlying market conditions at play,” Mr. Levine said.