[Freightos Weekly Update] Shanghai extends lockdown, increasing impacts on ocean and air.

Key insights:

1. The indefinite extension of the Shanghai lockdown is causing a significant slowdown of operations at the city’s major air and ocean ports due to labor shortages as well as a drop in the availability of goods as manufacturing and warehouses close, and trucking availability is significantly disrupted. 
2. As more airlines cancel flights, the Freightos Air Index shows Shanghai - N. Europe air cargo rates climbed to $11.92/kg last week, a 43% increase compared to just before the recent outbreaks.
3. Congestion is growing at Shanghai’s ports and at nearby alternatives like Ningbo. And though the outbreak in Yantian last May sent rates climbing just days after the shutdown began, transpacific ocean rates have remained stable, so far.
4. Asia - N. Europe prices went unchanged this week too, though a possibly inflation-driven decrease in demand has pushed Asia - N. Europe rates down by 20% since early this year to their lowest level since July.

Asia-US rates:

• Asia-US West Coast prices (FBX01 Daily) were stable at $15,817/FEU. This rate is 168% higher than the same time last year.
• Asia-US East Coast prices (FBX03 Daily) fell 3% to $17,148/FEU, and are 192% higher than rates for this week last year.

Analysis

The two-phase lockdown in Shanghai that was meant to end today is being extended indefinitely as the latest outbreak is not contained and a massive testing campaign continues. 

The extension of the Shanghai shutdown is resulting in a larger disruption than anticipated. Though Shanghai’s air and ocean ports remain open, labor shortages are slowing operations. In addition, the availability of goods has dropped significantly as manufacturing and warehouses are closed, and trucking is increasingly unavailable because of quarantine rules and travel restrictions.  

With limited goods available to ship, air cargo demand out of Shanghai is decreasing quickly. In response, air carriers are canceling flights.  Despite the drop in demand, the reduction in ground handling and capacity appear to be enough to push rates up: Freightos Air Index (FAX) Shanghai - N. Europe rates hit $11.92/kg last week, a 43% increase compared to just before the recent outbreaks and well above the pre-pandemic norm of about $2.35/kg

In ocean logistics, Shanghai ports like Yangshan are reportedly operating at only 50% capacity both because of labor shortages and a lack of available goods. As a result, some shippers are shifting to alternate ports like Ningbo when possible, and there are reports of carriers omitting Shanghai port calls. These developments are resulting in growing backlogs of ships not only in Shanghai, but in Ningbo as well. 

Last year’s outbreak at Shenzhen’s port of Yantian slowed operations by more than 70% there for nearly a week, and resulted in a 20% spike in ocean rates to the US and Europe.

So far, ocean rates to the US have remained stable, down by just 3% since the outbreaks began. This dip could be due to the drop in available goods. When operations rebound, we can expect some surge in shipments and possibly an increase in rates – though in the Yantian example ocean prices began to climb shortly after the shutdown began.   

Most indications are for strong transpacific volumes in the coming months, including some pull forward of summer demand to get ahead of peak season congestion and fears of West Coast labor disruptions. But there are also growing signs that consumer demand – the underlying driver of congestion and sky-high rates – is beginning to wane as a result of inflation. 

Spiking costs already appear to be contributing to a decrease in European demand.  Since late January, even with worsening congestion at major European ports, Asia - N. Europe prices have decreased 20% to $12,050/FEU – the lowest level since July.