China Lockdowns Threaten to Strangle Global Supply Chains

Indian traders are worried about diversion of large volumes of empty containers to China to load cargo for the US markets at a premium

The already stretched global supply chain crisis is all set to get worse. In fact, with Chinese ports operating at bare minimum capacity due to the Covid-related restrictions imposed by the government, the disruption in the movement of goods is expected to reach alarming proportions. While the problem is very bad between the US and China — the world’s busiest shipping route — it will have a cascading impact in other routes, including India-US. Experts believe that the disruption faced last year will pale into insignificance compared to what is coming.

In the container trade, it is true that when China sneezes, others will get cold. This is because seven of the top ten global container ports (including Hong Kong) are in China. Till a month ago, sending containers with cargo from Asia, especially China, to the US was an issue as US ports were congested with hundreds of ships waiting in the anchorage. It’s the reverse now.

Throughput crashed

Ships are waiting at Chinese ports as their throughput has crashed due to Covid restrictions. Shipping line Maersk stopped all new reefer and dangerous cargo bookings effective April 14 in Shanghai, the world's largest container port, until further notice. “We regret to inform you that several vessels will be omitting Shanghai,” said an advisory given by the world’s largest shipping line. Other lines have also issued similar advisories. Ningbo-Zhoushan port, the third largest globally, is also impacted. Maersk's Ningbo office remained closed from April 13 until further notice.

Low throughput is not the only challenge. Even as ships wait to load/unload cargo in Chinese ports, lakhs of empty containers meant for China are stuck at US ports and warehouses. This is causing a huge imbalance in the supply and demand for boxes. In the US, there is a pile-up of empties as those containers cannot be repatriated back to Asia because of several disruptions one after the other in the past two years, said Christian Roeloffs, co-founder and CEO, Container xChange.

Impact on India

Even if things return to normal in China, the trade in India is worried about possible diversion of large volumes of empty containers to China to load cargo for the US markets at a premium, said an official of a leading shipping line.

Prabhu Dhamodharan, Convenor at Indian Texpreneurs Federation shares this fear. Accessory importers may face delays in getting their shipment. The shortage of containers could aggravate further and there is a possibility that shipping freight rates, which have been reduced a bit recently, could increase due to possible diversion of empty containers to China. Typically, the exporters start their shipments from June and last till December..

“When Shanghai re-opens, we may see an avalanche of pent-up demand from the backlog of orders that were scheduled to leave Shanghai in March and April, “warns Jon Monroe, a global expert in shipping. A perfect condition for the diversion of empties.

With no end to Russian-Ukraine war, China's zero Covid policy and consequent lockdowns, Disruption is bound to happen given the fact that war is extending, China is facing pandemic lockdown, low throughput not just in China but also in US and European ports and global shortage of containers will impact exim trade of Indian business especially exports, said G Raghu Sankar, Executive Director, International Clearing and Shipping Agency (India) Pvt Ltd.

At a time when Indian exports are booming and the country is ambitiously looking to grow its merchandise exports to $1 trillion by 2027, supply chain disruptions can turn out to be a real spoiler.