As COVID lockdown measures are gradually relaxed in Shanghai it is uncertain how quickly export sea freight volumes will rebound, but many experts are anticipating a strong and sustained spike in demand creating a backlog of shipping containers, which could once again result in ocean shipments diverting and putting pressure on air freight, which is already experiencing reduced availability due to the lack of passenger aircraft, restricted movement through Russian airspace and carriers not finding the long haul route economically viable.

Shanghai port - the world’s largest container port - has remained open while the city’s lockdowns have disrupted manufacturing, trucking and freight operations for the past two months and the strength of the city’s manufacturing output recovery will determine if freight rates, which have stagnated, will increase sharply as peak season approaches.

While some believe that factories will recommence manufacturing steadily over coming months and ocean container shipping will resume the seasonal ups and downs we’ve been accustomed to before COVID-19, others point to the tremendous amount of cargo that is already awaiting shipment, estimated at 260k TEU, which combined with pent-up demand, can only result in a surge of pressure on container movements from the region.

The port is basically bursting with containers, and if not cleared or substantially reduced, there may be little room for export loading movements to occur as smoothly as they normally do, which in turn could pile on the pressure at Shanghai Pudong (PVG) airport.

Vessel traffic around the port is increasing with currently more than 3% of the global container fleet capacity stuck there and wider congestion is still having a profound impact, with serious congestion in both American and European ports causing sailings to return to Asia late, resulting in additional delays and blank sailings.

Meanwhile the huge backlog of containers at Shanghai grows, with no capacity to shift it and when you have all this capacity constraint and demand on the ocean freight side, cargo will simply begin diverting to air freight, to recover failures and delays in the supply chain. 

Importers who need their products to meet market demand, or to use in production, will use air to get those products as quickly as possible and that will also have an influence on capacity, which is more scarce today than it was two years ago. We know this as distressed sea freight and add this to the planned air freight for higher value products, with peak season due at the end of Q3, then there is likely to be a spike once production flows are recovered in the factories.

This could contribute to already elevated air freight rates, which have remained elevated due to the lack of capacity that followed airspace restrictions and the Shanghai lockdown.

Shanghai is loosening lockdown restrictions now, with the normal manufacturing and logistics environment likely to return in June and when it happens, we expect to see a surge in air freight volumes as shippers expedite products, that are needed on shelves the UK, Europe and the US.

We will continue to closely monitor the situation and update you as changes occur, but we do recommend checking with your vendors, to clarify the status of your orders.

We hope to see supply chains start to flow freely again quickly, as the pent-up demand for delayed goods could quickly create congestion, if operations are not running optimally.

We expect demand for space and spot/ FAK rates to increase very quickly and would suggest you start talking to us now about your potential requirements, so we can put appropriate plans in place.

To discuss how we support and protect your supply chain, please contact Elliot Carlile.

Shanghai is aiming to reopen the city and business operations, with normal life resuming from the 1st June, as all 16 city districts report acceptably reduced ‘zero-COVID’ cases.

At a press briefing on Monday, Shanghai’s Vice Mayor announced that 15 of Shanghai’s 16 districts had recorded no new COVID-19 infections for two consecutive days, with all of the city’s 16 districts achieving zero-COVID the following day. 

The news comes as the city’s case count fell under 1,000 for the first time in over a month, with the vice mayor announcing a three-phase plan for reopening, which aims to return to normal business operations by mid to late June.

Supermarkets, convenience stores and pharmacies have opened, but movement curbs will largely remain in place until 21st May, to prevent a rebound in infections, with efforts to restore normal production and life in the city from the 1st June.

The number of trains serving Shanghai and domestic flights are increasing and from the 22nd May bus and rail services will gradually resume normal operations, but passengers will need to show a negative COVID test.

At the end of April reports suggested that 20% of the global containership fleet was caught in congestion outside ports, with more than a quarter waiting to get into Shanghai, leading to fears of a cargo ‘tsunami’ when the port reopens and pent-up container flows are finally released.

Increasing numbers of factories are operating under “closed loop production“ and most warehouses are open (though operating with reduced capacity) while - critically - more trucking is available, which means more cargo is able to be shipped from Shanghai.

While other cities implement varied COVID control policies, cargo collection and deliveries is still facing challenges and heavy cost, so please check with us on a case by case basis, for the best solutions.

Flights serving Pudong (PVG) airport are resuming and are gradually increasing, but passenger flight policy has not changed, Chinese airlines are still re-routed to other airports, while foreign airlines are either ordered to suspend and cancel or reduce seating rate to 40%.  

China's severe zero-COVID restrictions are increasingly out of step with the rest of the world, which has been lifting restrictions even as infections spread, and are sending shockwaves through global supply chains.

China’s industrial output fell 2.9% in April from a year earlier, down sharply from a 5.0% increase in March and while economic activity has been improving in May, the strength of any rebound is uncertain due to China’s uncompromising “zero Covid” policy and the scale of future Covid outbreaks and lockdowns.

Beijing has been finding new cases almost every day, in an indication of how difficult it is to tackle the transmissible Omicron variant and while the capital has not enforced a city-wide lockdown it has extended guidance to work from home in four districts, banned dine-in service at restaurants and curtailed public transport.

We are working closely with our local partners to follow the evolving situation in Shanghai and Beijing and will continue to share any important developments.

With Shanghai’s lockdown lifting we anticipate the manufacturing bounce-back happening swiftly and we recommend checking the status of your orders with your vendors, to clarify when they will be manufactured and available for despatch.

We expect demand for space and spot/ FAK rates to increase very quickly and would suggest you start talking to us now about your potential requirements, so we can put appropriate plans in place.

With the long term fixed price and capacity agreements we have in place with our partner carriers we are well positioned to continue to deliver resilient, consistent and reliable supply chain movements as China recovers.

Our cloud-based supply chain management platform, MVT, simplifies the most demanding global trading regimes, by making every milestone and participant in the supply chain transparent and controllable, down to individual SKU level. 

To discuss how our technology could support your supply chain, please contact Simon George our Technical Solutions Director or Elliot Carlile.