Increased concerns about supply chain stagnation due to tightening control measures at Chinese ports

1.     Outline

 

 Recently, as the number of infections surged due to the spread of the Omicron mutation, China extended the Shanghai city lockdown period, raising concerns about a global maritime logistics crisis. It is predicted that the supply chain disruption will intensify as logistics delays continue at the Port of Shanghai, the world's largest container volume.

 

 Currently, vehicle operation and public transportation have been suspended except for port trucking in Shanghai, and all business sites other than essential industries (water, electricity, fuel, gas, communication, and food related) have been suspended or switched to telecommuting.

The city of Shanghai announced that it would take follow-up measures depending on the spread of COVID-19, but the number of infected people is increasing day by day, making it impossible to predict when the lockdown will end.

 

 The shipping industry believes that logistics efficiency is gradually declining due to a decrease in inland transportation capacity and suspension of warehouse facility operations, and the supply chain stagnation is expected to continue.

 

 Shanghai Port is the world's largest container port, accounting for 9% of total logistics in China. Authorities say the port is operating normally, but the European Union Chamber of Commerce analyzed that the container throughput at Shanghai Port decreased by 40% compared to the previous week after the city was closed.

 

 Container handling is delayed and congestion is increasing. According to Vessels Value, a British shipping and shipbuilding analysis agency, the number of ships waiting to enter Shanghai Port has increased five times more than usual.

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2. Data Analysis

2-1) Comparison of congestion and SCFI of all ports in China at the time of closure of Yantien Port (‘21.5/11)

 

 At the time of the closure of Yantien Port in 21st, industrial activities and city functions were operating normally, but the port was closed and operation was suspended due to the occurrence of confirmed cases in the port. As the city continued to function, the supply of export cargo continued, but the logistics bottleneck worsened due to the suspension of port operations, and SCFI freight rates rose.

 In particular, on May 7, 21, the SCFI fare surged 10.9% from 3,095.16 to 3,343.34 (May 14) and 3,432.50 (May 21) for two weeks. So let's look at the relationship between SCFI fares and congestion.

 First, I would like to compare SCFI index and the congestion situation in Chinese ports after 20 years. In order to understand the extent to which the time difference affects the SCFI index, the Chinese port congestion (t) data was converted from t-3 to t+2 and a correlation was drawn as shown in the table below.

 As a result of the analysis, it was found that the correlation coefficient between the SCFI freight index and the Chinese port congestion was -0.47 at the time t-3, and the freight movement of the Chinese port congestion and the SCFI at the time t-3 was shown as shown in the figure.

According to this analysis, it was found that there is a high influence on the relationship with SCFI freight index before t-3 weeks before congestion in the port.

 

2-2) Comparison of Shanghai Port congestion and SCFI due to Shanghai Port Closure

 

 Based on the results of the previous analysis, we would like to examine how much the current Shanghai Port closure will affect SCFI index in the future. Since the congestion situation at the port at time t-3 showed the highest relationship with SCFI index, a regression analysis was performed to predict future SCFI with the data at time t-3 as shown below.

 The results of the simple regression analysis are shown in the table below, and when the data at time t-3 is included, it is shown that the future SCFI index will drop to 3,363.22.

Y = -529.54 + X*(t-3) = 3,363.32

 

 

 Comparing Yantien and Shanghai, it can be seen that the port of Shanghai had a setback in product production and inland logistics due to the blockade of the entire city.

According to the analysis results alone, the congestion situation in Chinese ports will have a negative effect on freight rates, which will lead to a drop in freight rates. There may be various causes, but from a simple regression analysis, it means that the current congestion situation at the port is not likely to have such a big impact in the future in the downtrend of the overall SCFI freight index.

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3. Future Outlook

3-1) Increase in supply chain congestion due to strict lockdown

- Decreased logistics efficiency/delayed ships and temporary cancellations due to reduced inland transportation capacity and cessation of warehouse facility operation

 

3-2) Changes in container ship market supply and demand due to changes in external environment

- Decreased demand in major economies such as North America and Europe due to worsening financial environment such as interest rate hike and inflation concerns

- Ships supply increased due to the suspension of port calls by shipping companies to Russia after the Ukraine crisis

 

3-3) Sea freight rates expected to be weak

- Suspension of industrial production in manufacturing centers such as South China and Shanghai acts as a factor in reducing demand for Chinese exports

- Increase in vessel allocation to countries near China, such as Korea, alleviates cargo congestion and causes freight rates to fall

- The flow of shipping freight is expected to be affected more by changes in demand due to changes in external conditions and the actual supply of ships than by the current lockdown measures in China.

 

Thanks.