Ports Race to Clear Cargo, Fearing an Overload When China Lockdowns Lift

Date: Friday, May 6, 2022
Source: The Wall Street Journal

Western ports are bracing for increased congestion when China eventually lifts stringent Covid-19 restrictions in major cities, which could come just as many importers start to load up for the back-to-school and holiday shopping seasons.

Import gateways such as California’s Los Angeles and Long Beach ports, which handle more than a third of all containers coming into the U.S., are still inundated with uncollected cargo more than two years into the pandemic.

Once full export shipments resume in ports including Shanghai, which moves more than a quarter of all containers heading to Europe and the U.S., some officials say importers could face more delays in the arrival and handling of their cargoes, as well as higher delivery costs. Recent lockdowns in cities across China have weighed on factory activity, which in April fell to the lowest level since the early days of the Covid outbreak.

“I can’t say whether we will go back to a 100 ships queuing up to dock, but we really need to get the existing cargo out of the port and out of Southern California,” said Gene Seroka, executive director of the Port of Los Angeles.

Some U.S. companies are warning that lockdowns in Shanghai and elsewhere in China are denting sales, disrupting operations and putting added strain on supply chains that could be felt well into the summer.

The peak season for liner ships usually starts in late August and ends in November. Liner executives say this year’s season is starting earlier, with several American importers renting cargo space on ships for deliveries in early June. Amazon.com Inc., Walmart Inc. and thousands of other importers of furniture, toys, homeware and electronics have sought to move up shipments to avert delays and have enough inventory for the back-to-school and year-end holiday buying seasons.

Some shipping executives are skeptical that boxships from China will deluge U.S. and European ports in the months ahead. The Port of Shanghai didn’t close during the pandemic, but export volumes have fallen by as much as 30% since March, according to the Freightos Baltic Index. Inventory levels are already elevated for a range of companies that are trying to avert shortages or delayed deliveries.

“Shanghai has not had a big impact yet, but congestion is still a big issue,” said Soren Skou, chief executive of Denmark’s boxship giant A.P. Moller-Maersk A/S. “The very hard lockdown policy in China means there is a risk that factories will remain closed or that there will be more restrictions. We are in the sixth week of lockdowns, which is quite remarkable.”

Mr. Skou said boxes at East Coast ports such as New York are piling up as cargo owners fear the West Coast will stay congested. He said warehouses in Shanghai are operating at 20% to 50% capacity, cargo at European ports is moving slowly and about 10% to 12% of the global container fleet remains stuck at ports.

Shifts in consumer habits, including more money being spent on services such as dining and travel, could also affect shipping demand. Amazon posted its first quarterly loss since 2015 on the back of issues such as stagnating e-commerce sales, higher labor costs and supply-chain challenges.

Mr. Seroka of the Los Angeles port said fallout from China’s lockdowns has been limited so far. As of late last week, 39 ships were waiting to anchor outside Los Angeles and Long Beach, compared with more than 100 earlier in the year.

But the two U.S. gateways have limited free space and any sharp increase in incoming cargo could again rattle supply chains with higher costs and long delivery delays, according to Mr. Seroka and shipping executives.

“We have 16,000 containers waiting to load onto trains, and the number should be around 9,000,” Mr. Seroka said. “We need more engines and empty railcars into the port to accommodate the movement.”

European ports are also sounding alarms. The Federation of European Private Port Operators, known as Feport, said the cascade effect from the Shanghai closure will seriously disrupt EU box terminals over the next three months.

“EU seaports terminals cannot once again be the buffer, absorbing all the shocks and pressure from the situation in Shanghai,” Feport secretary-general Lamia Kerdjoudj-Belkaid said last week.

The inland movement of goods across the U.S. remains the biggest challenge for supply chains. Mr. Seroka said that less than 1% of the one billion square feet of warehousing space in Southern California is available.

The cost to move one container from China to the West Coast of the U.S. is now at $12,600, about double the cost at the same time last year, according to Freightos.

But with the Shanghai port still open and some cargo moving, some observers are hopeful that the eventual reopening will have less impact in terms of delays, congestion and increased rates than previous closures.

“The reopening will be gradually done and since manufacturing has also been closed to some extent, pent-up demand is not there to flood the U.S. West Coast with cargo,” said Peter Sand, chief shipping analyst of Norway-based transportation data and procurement specialist Xeneta.

[Read from the original source.]