China Covid-19 supply chain situation at 10th March

As the shipping lines get ready to start filing their ships from China and the demand for air freight is literally through the roof, our latest Coronvarius update considers the state of the freight markets, as well as the current situation in respect of container shortages and the status of critical supply chain factors across China.

While Chinese factories are only approaching 60% capacity the lack of raw materials is already an issue and the demand to send raw material to South-east Asia is driving the air freight market.

Reduced passenger demand in Asia has led to capacity cuts of between 50% and 70% and intra-Asia rates have hit an “unprecedented” high – with prices higher than to Europe.

Air belly-hold capacity still remains low, as passenger traffic has yet to resume, although full freighter schedules have restarted with a number of airlines including Lufthansa, Qatar, Emirates and Cargolux.

Sea ports and terminals have largely returned to normal operations and more trucking services have resumed, so containers are finally moving in an out of the yards.

Some estimates suggest that inter-province trucking is now operating at about 80% capacity and vessel utilisation levels of 75%-80% for Europe sailings.

Carriers have been obliged to withdraw almost half of scheduled capacity, 1.9m tea, on the Asia-Europe trade since the Chinese new year on 25 January.

The blanked sailings from China has caused a major problem for exporters, with cargo already delivered to container terminals having to wait weeks before loading, while acute equipment shortages has resulted in some carriers refusing bookings altogether.

The growing backlog of containers waiting to be exported at sea terminals, is also prompting some port to introduce restricted delivery slots.

For import and export traffic we expect heavy demand and high rates for capacity as we get back to normal.

SEA FREIGHT

The financial cost of the coronavirus outbreak to container lines is approaching $2bn
On the Asia-Europe trade, there have been 75 sailings blanked of which 29 are due to Covid-19
The westbound blankings are increasing capacity constraints and mean that, when equipment is available, European exporters to China are facing capacity surcharges
The general rate increases and peak surcharges being applied by some carriers have exceeded expectations
It is expected that existing rate agreements will be reinstated once the market has adjusted to the current challenges of the Coronavirus epidemic
Some carriers are considering force majeur, which relieves them of contractual obligations, and means no liability will be accepted for any additional costs, i.e. demurrage, detention, storage, rate increases, re-routing, off-loading at alternative ports and transport to original destinations
Force majeur will impact insurance cover and similar indemnifications

CONTAINER SHORTAGES

Blank sailings are causing considerable container backlogs in China, leaving shippers without containers and reefers to load
Some Chinese ports are reporting container levels are 40-50% higher compared to the previous year, while container stocks at European ports are up to 35% lower
Carriers are faced with the challenges of ‘repositioning’ – moving container stocks to where they are most needed, whilst reducing the costs they will incur in the process
Many carriers have already announced equipment recovery surcharges and congestion charges on key routes

AIR FREIGHT

Key routes into China are attracting additional surcharges and unprecedented rate increases
Charter flights are experiencing similar increases as some shippers prioritise movement over cost
Cancellations of passenger and cargo flights are set to continue into April and May
Situation is expected to continue/expand as major Asian centres and European hubs, such as Italy and Korea, are affected by significant Covid-19 outbreaks
With Chinese manufacturing approaching 60% of normal capacity, the need to move goods is driving air freight rate increases