No relief for China's supply chains as new challenges arise

No relief for China's supply chains as new challenges arise

No relief for China's supply chains as new challenges arise

Ahead of the extended Lunar New Year holiday in China, air freight rates have spiked as much as 50% and some shipping firms have suspended services.

It comes as China pushes ahead with its zero-Covid strategy — which means a recent spike in infections has resulted in lockdowns in the largest port hubs and major cities across the country.

“Although ports are still open, current restrictions, like mandatory quarantines and testing, continue to slow down transport and cause delays,” Atul Vashistha, founder and chairman of supply chain consultancy Supply Wisdom, told CNBC.

“Products are piling up while ships are banned entry. Between negative PCR-test requirements and last-minute re-routing, 2022 is starting off like 2021 ended – chaos,” Vashistha was reported as saying.

The Ningbo outbreak in December also sparked some curbs, and disrupted traffic at the world’s third busiest port, Ningbo-Zhoushan.

Operations have since largely resumed, but shipments were diverted to Shanghai — the busiest port in the world — causing congestion and delays there too, Judah Levine, head of research at freight booking platform Freightos Group, told CNBC.

As a result, Shanghai recorded an 86% increase year-over-year in blank sailings, it said, referring to an industry term for when a carrier decides to skip a particular port or the entire voyage altogether.

Sea shipping spot rates crept up 4% on the Asia to U.S. West Coast route, Levine said, but they’re not likely to go up much further, amid a pause in manufacturing as the Lunar New Year holiday approaches and factories shut down for an extended period.

However, air cargo rates are still spiking, he added.

“With enough time to still move cargo by air, the pre-holiday rush, along with pandemic-restricted capacity is pushing air cargo rates up,” he said, adding that the Freightos Air Index showed the China to North Europe rate was at $9.59 per kg in mid January— up over 50% from below $6 per kg at the start of January.

The Lunar New Year is China’s largest holiday and hundreds of millions of people traditionally travel back to their home towns from the cities they work in.

Shipping costs have been falling over the past couple of months as the supply chain backlog eased, but the recent Covid surge and any potential port closures are going to cast a shadow over any progress that has been made, said Paul Gruenwald, chief economist at S&P Global Ratings.

“I would say that this is going to slow the improvement we’ve been seeing over the last couple of months,” he told CNBC’s “Squawk Box Asia” on Thursday.

Subscribe to our newsletter