As the US enjoys a relaxation of restrictions with the waning of Omicron COVID infections, the same cannot be said for countries like South Korea, Hong Kong and China. In Hong Kong, the number of cases, hospitalizations and deaths continues to skyrocket, driven by the low rate of vaccination in an elderly population particularly susceptible to the virus. 

Hong Kong and China’s efforts to bring about an end to the continued upward infection rate has been to lockdown cities and regions – much as they did two years ago when the virus first emerged. Hardest hit is the southern region of Shenzhen with 17.5 million people bordering Hong Kong and is home to the manufacturing operations of consumer electronics and automotive factories and suppliers.

Our agent in Shenzhen advised us that their staff has been instructed to work from home from March 14th through 20th. At the Yantian Free Trade zone, they provided an update that, “Yantian Free Trade Zone, Bonded warehouse closed from Mar 14 to 20. 3PL, LCL / consolidation services will be affected, no cargo gate in/ gate out to the warehouse during this period.”

Of greatest concern to us – and should be to shippers – is what will happen if the port is shut down. Shenzhen is home to the world’s fourth largest container port and the last shutdown which reduced capacity by 75% for three weeks last year played a significant role in blanked sailings and a bunching of arrivals on the US west coast. 

In total, there are now about 40 million Chinese citizens in lockdown and as of March 16th, 34 vessels are waiting off the coast of  Shenzhen to dock. To the north in Qingdao, there are around 30 ships waiting to dock. These figures compare to an average of seven a year ago at this time.

 

An update published by Maersk on March 17th advises the problem is landside, specifically with requirements imposed on truckers.

“The overall landside transportation situation is dynamic subject to change. Trucking service for now is still available in China main ports and nearby cities providing the drivers hold negative Nucleic Acid Test (NAT) report requested by local governments. Specifically, we foresee trucking service between Shenzhen and nearby cities will be severely impacted by 40% due to the stricter road control and frequent Nucleic Acid Test.”

The fear of the further spread of COVID has led Shanghai Pudong Airport to close down flights. The CAAC said last Friday that all inbound international passenger flights from March 17th would be diverted to 13 other cities for six weeks in a bid to stop the spread of new COVID cases. From what we are being told, the flight restrictions do not apply to all-cargo freighter operations which will continue normally, for now.

This loss in capacity and diversion to surrounding airports will have three immediate effects. First, rates are anticipated to rise with a further crimping of available space, even though it was just passenger belly cargo. Second, China-side trucking costs will increase as goods destined for export will be trucked to further-away airports. Third, there is belief this will trigger an increase in the use of sea-air services, where cargo is loaded to leave China by ocean to a neighboring country where it will then be placed onboard an airplane.

With the exception of some brief lulls during the pandemic, we know that something impactful happening far away is going to have a cascading effect on importers and exporters around the world. BDG is committed to continuing to keep our customers apprised of these fluid conditions to make the most informed decisions for cargo moving through their supply chains.