Shanghai continues to be under a shifting array of lockdown regulations and the reality is  manufacturing and local landside logistics remains significantly impacted. For the first month of the lockdown the container carriers continued vessel operations almost as normal. This was sensible as the alternative would be to discharge Shanghai-bound cargo in other ports, in turn creating bottleneck problems there. Additionally, empty repositioning into Shanghai is important in preparation for the coming peak season. This can be called the first phase of the Shanghai lockdown.

The first phase of the lockdown brought with it a number of ripple effects. One effect was downwards pressure on spot rates as vessels were leaving Shanghai less utilised than planned, leading carriers to try to compensate by gaining cargo elsewhere. Another effect was increasing congestion in Shanghai as the containers inbound  had problems being taken out of the port and delivered to importers. Some carriers had to divert reefer cargo to other ports as well as place a booking stop on reefer cargo into Shanghai.

This first phase has now come to an end and we have entered the second phase.

As was entirely predictable, there is a limit as to how long carriers would maintain normal vessel schedules into Shanghai when the area remains in lockdown. Towards the end of April there was an increase in the number of blank sailings announced on the Asia-North Europe trade. And, in the beginning of May, we are now also beginning to see blank sailings on the Asia to US East Coast trade. Unless Shanghai re-opens soon, the carriers are likely to further increase the number of blank sailings as well as also increasingly omit Shanghai port to safeguard the integrity of the rest of their networks. As the vessel schedules remain in complete disarray – schedule reliability on Pacific to USWC is at only 20% and on Asia-North Europe it has reached a new record low at 14% – the blank sailings will most likely be labelled as “sliding” sailings or as adjustments in vessel voyage numbers. Technically bringing the vessels more in compliance with schedules, but still in reality removing capacity.

A consequence of phase two will be an upwards pressure on spot rates. The magnitude of the pressure is clearly dependent on how much the carriers go ahead and blank sailings. Another ripple effect of phase two will be a reduction of containers being repositioned into the area during July and August. Once again the magnitude is dependent on how much we will see blank sailings in the coming weeks. This will coincide with peak season, and if it is a strong peak this could add further upwards rate pressure during the peak.

Phase three will be the re-opening of Shanghai, which will result in a surge of cargo out of the area and set the stage for capacity shortages and upwards rate pressure. Furthermore, it is likely that peak season will start early in 2022. According to data from Flexport, the transportation time from exporter in China to importer in US and Europe is approximately two months longer than pre-pandemic normal. Importers will have learned a lesson from 2021 where it became a problem to get inbound cargo in time for Black Friday and Christmas season. They will most likely move up their timetable by a couple of months to properly compensate for the anticipated delays. This would potentially lead to the beginning of the peak happening in the wake of the Shanghai re-opening, creating an even tighter market.

Finally, there is another phase which will unfold over the coming years. The current shutdown in China is a clear consequence of political choices in the Chinese government. Many importers will begin to contemplate shifting part of the production out of China, simply to avoid the unknown risk of what the Chinese government could otherwise be doing to impact manufacturing. This will be a slow exodus of production likely to the benefit of manufacturers in other countries throughout Asia.

Source: Vespucci Maritime by Lars Jensen, CEO