Maritime Industry Braces For Impact As China Goes Into Lockdown Again

China is the home to most of the busiest ports in the world. This makes it the most important nation for shipping movements around the world. As the rise in Delta variant of COVID-19 outbreak in the country continues, millions of people are under a strict lockdown, potentially impacting the shipping industry critically

Maritime Industry Braces For Impact As China Goes Into Lockdown Again

The Delta variant has now reached nearly half of China’s thirty-two provinces in just two weeks. The overall number of cases (360+), though being low, is spreading fast.

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During late May, when a sudden COVID-19 outbreak was detected in the area surrounding the Yantian Port, in China, the port reduced it’s operating efficiency by 70%. This impacted a daily flow of approximately 25,500 TEU of cargo, critically impacting shipping movements around the world, resulting in the sky-rocketing of freight prices, and prolonged delays. If the rate of spread of the Delta variant remains the same, or sees a surge, similar impacts in the shipping industry are on cards.

Shipping companies around the world have ordered a record number of newbuilds in the past six months. Many of which, are from Chinese shipyards. If wider lockdown measures are taken in the country, the shipyards too, might see their delivery schedule coming under pressure.

Yesterday (2nd August), a report from Braemar ACM pointed out, “For freight markets, the implications include delays at ports as authorities screen crews of incoming vessels and a hit to China’s oil demand if widespread lockdowns are imposed”.

“As long as lockdowns remain confined to China, the impact on freight markets is likely to be muted, especially in the case of wet and dry freight. The container market seems most vulnerable if we see more severe disruptions to manufactured products supply chains,” commented Plamen Natzkoff, a senior trade expert at VesselsValue. “An immediate impact of a lockdown in China is reduced population mobility which would have a direct impact on demand for transportation fuels, potentially impacting negatively the tanker market.” He added.

The container sector might me impacted, like the way it was, in February 2020, when COVID-19 cases started to surge in China, and the government announced a strict lockdown. “Assuming that a strict China lockdown would lead to a scenario as in February 2020, we would expect a drop in production of 15-20% for about a month,” said Alan Murphy, the CEO of Sea-Intelligence, a Danish consultancy firm. “Cargo owners, already stressed beyond sanity from devastatingly high freight rates and absurd surcharges, and with no way to secure neither equipment nor space, would suddenly see their procurement costs sky-rocket in addition to their back-breaking logistics costs”. he added.

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Murphy further predicted, that the possible lockdown would mean a decrease in productions too. This would be easing off the pressure at the ocean bottleneck, resulting in a considerable lowering of freight prices.

Peter Sand, the Chief Shipping Analyst at BIMCO, said, “For container shipping, which is more than red-hot at the moment, even a brief halt in Chinese exports is likely to ease the crunch a bit logistically so long as a lockdown only closes manufacturing sectors and not ports and terminals”.

Nick Ristic, a dry bulk analyst at Braemar ACM believes that the shipping industry will not be as badly affected, as it was, during the start of the pandemic, last year. The consumer demand and the underlying economy however, is starting to slow down in China, which is a matter of concern. Said Ristic. The Caixin/Markit manufacturing purchasing managers’ index (PMI), which was 51.3 in June, fell to 50.3 in July.

Factory activity in China, expanded in the slowest pace in fifteen months, as the number of new-orders dropped.

Bulk congestion has hit a five-year high in the country, with over 50.5 million DWT by the weekend, a rise of approximately 24% year-on-year, owing to the set of new restrictions, put up in places in ports around the country. A 76% increase in current queue is witnessed too, in China, as compared to the past five-year average. States the data obtained from Braemar ACM. The increase in COVID-19 protocols have also worsened the on-going crew change crisis in China, and around the world.

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Most of the ports in the country, are now requiring a negative Nucleic Acid Test (NAT) for all crew members on-board vessels, forcing the ships to remain anchored, until the confirmation of negative reports of the NAT.

Quarantine rules too, have been reintroduced in many ports around the country. This requires crew members to quarantine for 14-28 days, if they previously berthed in India, or were indulged in crew change, within 14 days of arriving in China.

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