Global Transport and Logistics
Select country/ language

Select country/ language


Login Sign up

Disruptions in China will affect the rest of the market

In my first article for DSV in early January, the following was stated: “It is a fact that the new omicron variant of the COVID-19 virus is more contagious than previous variants. This means that the risk of an outbreak in China is many times more than in 2021. This also means that the risk of outbreaks will create further problems for supply chains to and from China and should be considered highly likely in the coming week and months.”

This unfortunately proved to be true, as we see Shanghai continue to struggle with the lockdowns. At the time of writing (19 April), it is still unclear exactly when the restrictions will be lifted, as they have been extended without a fixed deadline. New record numbers of infections are occurring daily, and China maintains a zero-tolerance policy towards COVID-19.

Further supply chain limitations in Shanghai

Technically, the port of Shanghai remains fully open, but factories, warehouses and depots are closed and many truck drivers cannot go to work. Supply chains are therefore severely constrained, leading to a predictable chain reaction in the coming weeks and months. In this phase of the lockdown, carriers continue their activities as usual. They do this in order to be able to unload cargo via Shanghai and empty containers at the right places, even though this type of cargo is now declining sharply.

This has already led to a shortage of reefer plugs, and storage space for specific types of dangerous cargo. Increasingly, both types of cargo are now being kept on board for unloading in other ports.

A different situation than in Yantian and Ningbo

It is expected that carriers will begin to omit port calls in Shanghai in the coming weeks, followed by blank sailings due to the decline in export volumes. In essence, this is the beginning of a replay of what we saw in early 2020 and during the Yantian and Ningbo shutdowns in 2021.
The drop in t volumes will alleviate pressure on the congested ports in Europe and the Americas with a time lag of 3-5 weeks.

When Shanghai re-opens, there will be a surge of cargo coming onto the market, and with another lag time of 3-5 weeks, this cargo will arrive in the ports in Europe and the Americas, once again worsening congestion issues. If the lockdown lasts more than a few weeks, this surge in cargo will begin to coincide with the beginning of the traditional peak season and, in combination with port congestion, we will once more face capacity shortages.

Freight rates are dropping (for now)

One of the immediate effects of this situation is a continued downward pressure on spot rates. In this context it must be noted that the drop in rates seen since the Chinese New Year on Asia-North Europe have been less than what could be expected seasonally, and on the transpacific trade lane the drop is only slightly below the usual seasonal weakening of the market.

So, the downfall may continue for some time given the impact of the Shanghai lockdown. Once Shanghai reopens, we expect to see strong upward pressure on freight rates. But how strong can that pressure be?

An increase in rates is expected

To support this expectation: when Yantian re-opened after the 2021 lockdown, we saw the spot rate for Shanghai-Los Angeles increase by more than 2,000 USD/FFE in a single week, and in the same week, the spot rate for Shanghai-Rotterdam rocketed by almost 800 USD/FFE.
Looking at slightly longer time frame, the four weeks after the re-opening of Yantian saw an increase in spot rates for Shanghai-Los Angeles by almost 3,400 USD/FFE, and for Shanghai-Rotterdam rates increased by almost 1,800 USD/FFE.

It is therefore expected that market conditions will be unstable in the coming weeks, not only until the reopening of Shanghai but also in the period thereafter. Shippers may face not only rising rates but also capacity shortages.

Read more about our seafreight solutions

Any questions?

Our teams in DSV Air & Sea are ready for you.

DSV Air&Sea Contact us