- Shipping will need to start to make contingency plans if cases of Covid-19 continue to escalate in China.
- When a Covid-19 outbreak was detected at Yantian Port in late May, operations at the key southern Chinese export hub were slashed by 70% for most of June.
Shipping will need to start to make contingency plans if cases of Covid-19 continue to escalate in China, the world’s most important nation for shipping movements, reports Splash247.
Lockdown Outbreaks
The delta variant has broken through the country’s virus defences, which are some of the strictest in the world, and reached nearly half of China’s 32 provinces in just two weeks. While the overall number of infections — more than 360 so far — is still lower than Covid resurgences elsewhere, the wide spread indicates that the variant is moving quickly with many millions of Chinese now in lockdown.
Freight Markets in Heavy Disruptions
“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,” a report from Braemar ACM pointed out yesterday.
When a Covid-19 outbreak was detected at Yantian Port in late May, operations at the key southern Chinese export hub were slashed by 70% for most of June. Similar disruptions are on the cards in the coming weeks, while shipyards are also likely to see their delivery schedules come under pressure if any wider lockdown measures are taken.
Differentiating Impact Outcome
“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, senior trade expert at VesselsValue.
On the potential tanker ramifications, Natzkoff said: “An immediate impact of a lockdown in China is reduced population mobility which would have a direct impact on demand for transportation fuels, potentially negatively impacting the tanker market.”
Danish Consultancy CEO’s Evaluation
On the possible consequences for the container sector, Alan Murphy, CEO of Danish consultancy Sea-Intelligence, reminded readers of what happened in February 2020 when China first went into lockdown. Carriers responded with a wave of blank sailings.
“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,” Murphy suggested.
While that at first might not sound too detrimental, after all that is in rough numbers what happens every normal Chinese New Year, 2021 is not a normal year.
“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,” Murphy predicted, adding that the one possible silver lining for shippers could be that as the production decreases start to wave out to the Chinese ports, pressure would start to ease off on the ocean bottleneck, which could start to bring down freight rates.
The added concern Murphy has is if Chinese ports were not able to run at full capacity, like Yantian earlier this summer.
“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,” commented Peter Sand, chief shipping analyst at BIMCO.
Braemar ACM Dry bulk Analyst’s Inference
Nick Ristic, a dry bulk analyst at Braemar ACM, said the sector would not be as badly affected as it was at the start of the pandemic last year.
“Based on the experience in other countries with prolonged lockdowns, it seems the world has learnt how to keep things running with restrictions in place,” Ristic pointed out.
Of greater concern for Ristic is the state of consumer demand and the underlying economy in China, which is starting to slow down.
“This could take some real steam out of the Chinese economy and manufacturing base. PMIs are already weakening too,” Ristic said.
Rising Crisis with Cases
Factory activity expanded at the slowest pace in 15 months in China last month as new orders dropped. The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 50.3 in July from 51.3 in June.
Bulk carrier congestion in China hit a five-year high of 50.5m dwt over the weekend, rising by 24% year-on-year as new restrictions were put in place in ports across the country.
Current queues are 76% above the five-year average according to data from Braemar ACM as Covid-19-related protocols affect all sectors of the dry bulk market, worsening the crew change crisis in the process.
Newly reported positive Covid-19 cases in China have recently forced the country to re-introduce restrictions to curb the spread of the virus.
Port Congestions Effect
Most ports in the country are now requiring a nucleic acid test (NAT) for all crew, with vessels forced to remain at anchor until negative results are confirmed.
Many ports in the country are also requiring vessels to quarantine for 14-28 days if they previously berthed in India or performed a crew change within 14 days of arriving in China.
“While it is unclear how long these measures will be in place for, they will likely tighten the dry market in the near-term,” Braemar ACM suggested in a note to clients yesterday.
Ralph Leszczynski, global head of research at Banchero Costa, like most analysts contacted by Splash, was adamant that China would not press ahead with a national lockdown.
Economic Unsustainability
“Larger scale lockdowns would be unsustainable economically, so can happen at local level – in a single neighbourhood or city, but not for whole provinces, not to mention nationwide,” Leszczynski said.
China has managed to carry out one of the largest vaccination campaigns this year, with over 60% of the population already vaccinated, and an 80% vaccination threshold likely to be reached by September or October.
Series of Targeted Lockdowns
“China will certainly try now to contain and eliminate the current outbreak, but if they don’t manage to do that, and it spreads uncontrollably nationwide, I think they are more likely to shift towards more of a living with Covid strategy thanks to vaccination in the autumn, similar to what Singapore has announced recently, rather than shutting down the whole country, which would be unsustainable economically and create discontent,” Leszczynski said.
Mark Williams, who heads up British consultancy Shipping Strategy, concurred with Leszczynski, telling Splash: “More likely than a national lockdown is a series of targeted lockdowns by province or county. If those lockdowns include coastal regions, key ports and logistics centres, then globalised supply chains will become chaotic.”
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Source : Splash247
