Yantian port delays worsen an already disrupted shipping situation
The latest crisis in a seemingly never-ending series of unfortunate shipping events is already more disruptive than the Suez Canal blockage, and is deepening the current global shipping chaos.
We’d all hoped the situation at Suez would be the last in a string of economic maritime disasters, but the shipping industry is clearly not out of dire straits yet. The container shortage continues, skyrocketing freight rates aren’t slowing, and delays are accumulating. Why? Yantian port in Shenzhen, South China (officially Yantian International Container Terminals or YICT), the fourth-busiest container port in the world and the primary electronics export port, was hit by a new wave of COVID-19 outbreak on May 21st.
That outbreak has resulted in a disruption cascade of which the ripples can still be felt now, a month later, and may very well be troublesome enough to hinder December holiday shipments.
How Yantian set off a chain-reaction of disruption
Following the detection of the virus in the area, YICT hastily locked down. Although it was only for a couple of days (May 25-27th), the shut down was a big deal; Yantian port normally serves 100 cargo vessels every week and is a key Asian export hub to both the U.S. and Europe. In 2020, this port processed 13.3 million containers (source: CNBC).
YICT’s closure forced incoming carriers to cancel calls at Yantian and reroute their vessels to the other Shenzhen terminals of Shekou or Chiwan, the Guangzhou terminal of Nansha, or Hong Kong. Since there were (and still are) not enough available vessels, the export containers in Yantian started to pile up. As of this week, there are estimated to be a whopping 160,000 40-foot containers (300,000 TEUs) awaiting pickup (source: CNBC). To put that into perspective, the Suez Canal blockage affected around 330,000 TEU in total (source: joc.com).
Although Yantian port has since reopened, it’s operating massively below capacity, as manpower is still insufficient. Waiting times for vessels to berth have escalated from an average waiting time of half a day to 14 days. The latest intel from the Yantian port authorities themselves is that overall operational capacity has returned to 70%, but this information has been met with considerable skepticism. The Yantian situation is a big problem, and not just for China.
Ports in South China struggle with congestion as containers stack up
Yantian is particularly problematic because of its knock on effect on so many other supply chains. Those diverted vessels have to go somewhere, which has resulted in congestion in neighbouring Shenzhen terminals that are struggling to keep up, especially when faced with their own pandemic-related restrictions curbing productivity, such as lack of truck drivers. These ports are already operating at full throttle, due to sustained and heavy demand from U.S. importers. To curb congestion, Yantian, Shekou, and Chiwan terminals are only accepting laden boxes three days prior to vessel departure. Nansha and Da Chan Bay require drop-off seven days before vessel departure. Hong Kong also has its own challenges that are causing delays (source: joc.com).
It’s no surprise that the situation has created a huge backlog of containers waiting to leave and ships waiting to dock. As of last week, more than 50 container vessels were waiting to dock in Guangdong's Outer Pearl River Delta, according to Refinitiv data (source: CNN), the biggest backlog since 2019. Vessel capacity simply can’t keep up with eastbound trans-Pacific demand, and ocean reliability is down to below 25% on China-US and China-Europe trade routes (source: joc.com).
Even when the ports of southern China recover normal operations, the subsequent surge of cargo will cause ripples of congestion at destination ports. Yantian handles a quarter of China-US trade (source: joc.com) so U.S. ports are expected to face an unavoidable lag time of a month or more (source: CNBC). The after effects of the Yantian port closure may very well cause a domino effect on supply chains that goes on for long enough to impede products from reaching retail shelves in time for the all-important Christmas shopping season.
Ceilings on premiums for shipments from China to North America are vanishing as cargo owners beg for any available space, since the U.S. is predicted to face massive product shortages in the next three to six months. Shipping lines are currently offering all-in rates (FAK plus premium service fees) from China - inland US at around $25,000/FEU, but that could well increase to $30,000-35,000/FEU by the end of June. On a port-to-port basis, spot rates with premiums from China were still in the ranges of $9,000-10,000/FEU to the US West Coast, $12,000-14,000/FEU to the US East Coast and $14,000-17,000/FEU to the US Gulf Coast this week (Source: S&P Global).
To sum it up
Despite the chaos caused by the situation at Yantian, there is a glimmer of hope. If goods are held up in leaving China, or vessels are leaving at less than full capacity, European ports win some time to clear their own backlogs. However, it isn't much to go on. We highly recommend considering alternative modes of transport if possible, such as air freight, which Hillebrand can help you to organize.