China partially closed the port after one Covid case


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Heavy cranes in Ningbo port in China.

Philiphotographer | iStock | Getty Images

China has closed a key terminal at its port of Ningbo-Zhoushan, the third busiest port in the world, after one worker was infected with a Covid-move that is likely to put additional pressure on already stretched supply networks.

It was the second time this year that the state had suspended operations at one of its key ports.

Analysts say China’s “zero tolerance” approach to Covid will exacerbate already-stressed supply chains this year. Some warn that this may not be the last port closure as long as Beijing continues to take this stance.

Dawn Tiura, executive director of Sourcing Industry Group – an association for the procurement and procurement industry, said the Chinese stance would lead to “serious” consequences in the supply chain.

“China has zero tolerance for COVID. One person positive for testing is enough to close the port,” she told CNBC.

Ningbo-Zhoushan is the third busiest in the world in terms of container volume. According to the World Navigation Council, in 2019 it operated 27.49 million equivalent units (TEUs) of container throughput. Container volume in 2020 increased by almost 5% to 28.72 million TEU.

As long as the authorities maintain this position on the “zero coronavirus”, the risk of sudden interference caused by testing or blockages will persist …

Nick Marro

Economic Intelligence Unit

All incoming and outgoing services at the Meishan terminal in Zhoushan port were suspended on Wednesday until further notice, according to Chinese state media. The terminal is crucial for servicing shipments to Europe and North America.

Supply chains have already been severely disrupted this year by crises like lack of transport containers, i Incident on the Suez Canal. In June, Covid infections caused interference in transport hubs in southern China, including the key ports of Shenzhen and Guangzhou – the first time that China has suspended port operations due to the Covid case.

Implications of China’s “zero COVID virus” stance

China’s zero tolerance for the Covid approach suggests that this latest disruption in the port may not be the last, said Nick Marro, head of global trade at the Economist Intelligence Unit.

“China’s ‘zero Covid’ approach means officials will prioritize pandemic mitigation over everything else, especially given the highly contagious nature of the Delta strain and the risks the current epidemic poses to future economic results in the third quarter,” the note said. Wednesday.

“As long as the authorities maintain this position on ‘zero kovida,’ the risk of sudden disruptions caused by testing or blockades will continue, which firmly links any hope of normalcy to factors such as national vaccination deadlines,” he added.

China is experiencing a revival of Covid cases due to the highly portable delta variant. Daily cases crossed 140 on Monday, the highest number of daily infections since January, according to Reuters. The Chinese authorities have ordered mass testing in several areas and imposed widespread restrictions on movement in larger cities, including Beijing.

The suspension of services at the Meishan terminal comes as container shipping rates continue to rise this year. Container transport rates from China and East Asia to the west coast of North America have risen more than 270% this year to over $ 15,800 per TEU, according to the Freightos Baltic global freight transport index. Meanwhile, eastbound rates jumped 220% to over $ 17,500 per TEU, according to the index.

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Analysts warn that there will be further delays, and consumers will likely have to bear the cost as the holiday season approaches.

Tiura noted that the earlier June Covid epidemic resulted in a 70% reduction in exports of key Shenzhen Yantian terminal. It has tripled the waiting time for shipment processing from 3 days to 8 or 9 days.

Given that Ningbo-Zhoushan is the third largest container port in the world, this shutdown exacerbates an already bad situation.

Dawn Tiura

CEO, Sourcing Industry Group

“If we experience something similar here, and the time to move ships through the port doubles or triples, we will see a significant and long-term impact on exports that affects the holiday shopping season and boosts inflation,” she said.

“The shortages of containers have already burdened global supply chains. Given that Ningbo-Zhoushan is the third largest container port in the world, this closure makes the already bad situation much worse,” Tiura said.

She said container capacity is likely to rise in price, and shippers are likely to pass on costs to consumers, warming global inflation ahead of a crucial holiday season.

Mario Ciabarra, CEO of digital analytics firm Quantum Metric, said retailers will face a lot of uncertainty ahead of the holidays, and inventory challenges will be one of them.

“Stock levels will be the primary concern of retailers because they are faced with the decision to either have limited or no stock of certain items or will instead manage higher costs associated with air freight,” he told CNBC.

Marro from the EIU also pointed to disruptions that will be exacerbated by key demand ahead of the holiday season.

“Interruptions in trade are not only problems for delivery and consumers, but also for producers who rely on critical imported components,” he said.

IBC Wang of CNBC contributed to this report.

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