How Will the Shanghai Lockdown and Pending Labor Negotiations Effect Your Q2?

The world’s highest volume port, Shanghai, is currently in the middle of a COVID-19 lockdown to allow for mass testing in a two-phase plan that was set to conclude on April 5, but has now been extended with no posted end date. The Shanghai port lockdown follows a massive spike of total COVID cases to 12,000 during the week of March 25. The full lockdown comes as a surprise due to the city’s economic significance, and while a disruption in the supply chain is inevitable, the ultimate effects will not be known for weeks.

Shanghai residents were told they must work from home while the testing is ongoing, stopping transport services across the city. Included in the order are factories and warehouses, with leading firms like Tesla reportedly stopping all work.

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Although carriers have confirmed no changes to schedules nor port operations, the vessel queue increase at the Shanghai port combined with the shakeup of manufacturing, landside transportation, depots, and warehousing is an indication of impending supply chain disruption. Vessel queues at the port of Shanghai climbed above seasonal averages in March, increasing roughly five-fold to around 300 ships. To put that in perspective, the 2107-2021 average for the same time of year was 75 vessels.

Vessel queues at the port of Shanghai climbed above seasonal averages in March, increasing roughly five-fold to around 300 ships. To put that in perspective, the 2107-2021 average for the same time of year was 75 vessels.

LCL trucks are not currently permitted, but the majority of FCL shipments are expected to be handled via the Shanghai port as non-Shanghai trucking companies can still enter the Shanghai port with FTLs and full container loads.

“These various factors will adversely affect container and vessel space availability resulting in ocean freight rate volatility, threatening market stability, and leading to higher rates,” says Kasia Wenker, director of supply chain solutions at ITS Logistics.

Price fluctuations are nothing new with multiple trade routes at record demand, which has revived “peak season” or congestion-related surcharges for container movement. Mixed with the recent surge in fuel costs-an unwelcome familiar feeling for many in the industry.

The shortage of truckers is an impending concern as various testing and checks may deter them from picking up containers in South China. Trucking services between Shenzhen and nearby cities could be impacted up to 20% due to stricter road control and the now frequent Nucleic Acid Test due to COVID. Longer delivery times and a rise in transport costs are likely to occur.

The risk of a ripple-effect on US port operations is a growing reality

Trans-Pacific premiums have strengthened as many United States-based importers have already been booking cargoes to the US east coast, rather than dealing with labor negotiations looming on the west.

Trans-Pacific premiums have strengthened as many United States-based importers have already been booking cargoes to the US east coast, rather than dealing with labor negotiations looming on the west.

“We are still seeing significant congestion in New York, New Jersey, and Charleston, South Carolina. I believe there were 20+ vessels off the coast at last check,” says Paul Brashier, vice president of drayage and intermodal at ITS Logistics. “There is still a significant vessel backlog off the Los Angeles coast, though they now have those vessels dwelling off the coast of Mexico before they are called to the port.”

While the operational situation at US ports has somewhat improved, the approaching expiration of the ILWU and port contract on July 1st this year could prolong any detrimental effects of the Shanghai lockdown. When the contract last expired in 2014, there were union strikes and consequent supply chain disruptions, while negotiations lasted for nine months.

While it is difficult to accurately gauge the impact of these events on the North America supply chain, the key factors to watch in the coming weeks will be the duration of the Shanghai lockdown, severity of measures taken, and the upcoming negotiations of the port union contract on the US West Coast.

Highlights from Maersk’s Advisory:

• Some depot closures from March 28 till further notice
• Trucking service in/out Shanghai will be severely impacted by 30% due to a full lockdown on Shanghai’s Pudong and Puxi areas in turn until 5th April.
• All the warehouses in Shanghai will remain closed from March 28-April 1