News

A spate of lockdowns in Shanghai and other Chinese cities is piling severe pressure on transport and logistics across the country, exacerbating the economic fallout of the government’s commitment to its zero-Covid policies as cases continue to soar to record levels.

The disruption has affected the trucking industry in particular, which plays a critical role in transporting goods between cities and to some of the world’s biggest ports but is now subject to severe restrictions on drivers and deliveries to locations with positive cases.

“Trucking is the main issue we have,” said Mads Ravn, executive vice-president and global head of air freight procurement at DSV, one of the world’s largest freight brokerages. He added that booking truck services was close to impossible and that flight activity into Shanghai Pudong airport was just 3 per cent of its rate last month, with air cargo shipments limited to essential goods such as medicine.

“Basically everything else is not moving but is being diverted away from Shanghai to other parts of China. It’s affecting every commodity you can think of,” he said. “It will have a global effect on almost every trade.”

China is grappling with its worst coronavirus outbreak since it first emerged in Wuhan more than two years ago. Shanghai reported nearly 20,000 new cases on Thursday, a record for the city.

Maersk, the Danish shipping company, warned in late March that the city’s lockdown measures would reduce trucking services in and out of Shanghai by 30 per cent.

But since then, restrictions, which were initially supposed to cleave the city in two for a staggered nine-daylockdown, have grown more severe and overrun, enveloping the whole city at once. It is unclear when the measures will be relaxed.

The measures, which in Shanghai have led to a chorus of complaints over the difficulty of obtaining food as drones survey empty streets, have also been more widely implemented in China as officials struggled to contain the worsening outbreak. Nomura, the Japanese bank, this week estimated that 23 cities and almost 200mn people were under full or partial lockdown.

“These figures could significantly underestimate the full impact, as many other cities have been mass testing district by district, and mobility has been significantly restricted in most parts of China,” said Ting Lu, chief China economist at Nomura.

Bo Zhuang, a Singapore-based analyst at Loomis Sayles, an asset manager, said: “Many of the entry and exit points on the highways between provinces are blocked, and there has not been a co-ordinated effort between the various provincial governments to ease the supply chain crunch.”

Express delivery companies in Anhui and Jiangsu provinces, both in the east of the country and close to Shanghai, told the Financial Times that packages could not be delivered to any areas reporting locally transmitted cases, including Shanghai.

Orders from Taobao, an online marketplace popular with Chinese consumers, were subject to delays because of lockdown measures.

Apart from domestic disruption, analysts warned that any inland logistical bottlenecks would eventually result in ocean shipping delays because of the build-up in goods and orders — and that the associated costs would surface when the measures were finally loosened.

“Once Shanghai reopens, it’s déjà vu of the story we’ve seen so many times,” said Lars Jensen, chief executive of Vespucci Maritime, a consultancy. “There will be a surge of volumes and upwards pressure on spot rates.”

The latest economic data on Wednesday signalled the effects of the recent escalation in controls, with the China Caixin service purchasing managers’ index showing the worst month-on-month contraction in March since early 2020.

There is no evidence of unusually long vessel queues outside of the world’s largest port in Shanghai, which authorities said was operating a “closed loop” system where workers did not leave their work premises after their shift ended.

But cargo volumes through the port tracked by FourKites, a supply chain data group, had dropped by about a third since March 12 as importers and exporters rerouted freight.

China Daily, a state-run newspaper, said goods were increasingly being sent into Shanghai by sea because many neighbouring cities had blocked truck drivers from entering.

Maersk said last week that it could provide services via “barge or rail as alternative solutions for the corridor between Shanghai and nearby cities”.

But Loomis Sayles’s Bo said this was only a “temporary solution” because as the virus spreads to more cities and provinces, those diverted channels would probably also be blocked off by lockdown measures.

Additional reporting by Wang Xueqiao in Shanghai, Nian Liu in Beijing and Andy Lin in Hong Kong

Articles You May Like

Enphase Energy Plunges Post Earnings: Do You Buy the Dip?
Biden administration warns of lengthy disruption at Baltimore port
Ron Insana’s new firm aims to bring AI-powered trade ideas to individual investors
Mortgage demand stalls, even as interest rates moderate
China faces ‘fork in the road,’ IMF chief says, urging Beijing to embark on pro-market reforms