Global News Chinese lockdowns risk factory-driven ‘bullwhip’

Global containerized trade is showing signs of cooling, but the COVID-19 lockdowns in China promise only a brief respite from US import pressures, at best. Even if American consumer demand smacks hard into the wall of rising inflation as some fear it will, spurring a wave of canceled and reduced factory orders, there are still plenty of issues that will continue to test US ports in the coming months.

The signs of shipping disruptions receding come amid economists’ downgrading of global economic growth due to the Russia–Ukraine war, and most recently, the expanding lockdown in China, which is hampering labor at factories, the trucking of shipments between suppliers, and delivery of goods to ports.

Stalled Chinese exports will eventually move through the trans-Pacific pipeline, however, putting more pressure on already-congested US ports in typical “bullwhip” fashion. Perhaps more alarming are rising doubts about how long it will take factories to rev up production, adding even more impetus for US importers to scramble for more finished goods.

“The lockdowns may ease pressure on US ports, but there will be payback later on when the lockdowns are lifted and the [imports from China] start coming back in,” Patrick Newport, executive director of US Economics at IHS Markit, said April 26 at the JOC Breakbulk & Project Cargo Conference in New Orleans. IHS Markit, now part of S&P Global, is the parent company of JOC.com.

In the meantime, global container volumes will continue to decline on a year-over-year basis through the year, Maersk said during an early guidance call April 26. The carrier downgraded its volume outlook from 2.4 percent to between a 1 percent contract and 1 percent expansion. Reflecting further softening, the charter market is the quietest maritime analyst Alphaliner has seen in nearly a decade. Some of the inactivity in the first half of April was due to the Easter holiday, but charterers are also adopting a “‘wait-and- see’ approach in response to an ocean of economic and geopolitical uncertainties plaguing the world economy,” Alphaliner said in its weekly newsletter.

Some of the soaring container spot rates on smaller trades are also coming back to Earth. For example, spot rates from Asia to the East Coast of South America in early April crashed to an 18-month low, after shooting as high as $14,350 per FEU last year, according to rate benchmarking platform Xeneta. Very limited import relief But there’s little sign of pressures easing on the trans-Pacific trade other than charter carriers and extra-loader services becoming less frequent, possibly because they see less of an opportunity to serve shippers unable to get guaranteed space with container lines. Aside from some softening of container spot rates out of the East Coast to Asia, trans-Pacific rates out of Asia have largely held firm, according to an analysis by Sea-Intelligence Maritime Analysis. Spot rates on the eastbound trans-Pacific to the West Coast remained mostly flat through the first quarter, but at $8,667 per FEU in the last week of April are 145.1 percent higher than a year ago. Priority shipment fees to guarantee loadings can add as much as $6,500 to base rates, Xeneta data shows.

The Sea-Intelligence analysis “shows that the Asia-USWC rates should right now be at the seasonal bottom, and hence any further rate declines in the coming weeks, will signal that the market becomes weaker than what can be explained by seasonality,” according to the firm’s April 24 Sunday Spotlight newsletter.

Volumes of US imports from Asia are still growing, up 2.5 percent year over year in the first quarter, according to data from PIERS, a sister product of JOC.com within IHS Markit. Those shipments are already moving through clogged marine terminals, storage yards, and warehouses. In addition, importers have been frontloading imports due to concerns about US West Coast labor disruptions and more of the typical back-to-school and peak season imports will begin moving later this spring.

“Historically, inventory purchases peaked in the August-to-December timeline,” Hasbro CFO Deb Thomas said during a first-quarter earnings call with Wall Street analysts. “In 2022, we expect this peak to occur in the May-to-July time frame.” The toy maker is “advancing deliveries of key items in our owned inventory so that we can ensure it’s on hand,” Thomas said.

The lockdowns in China will take a toll on May volumes. The latest Global Port Tracker report projects a 5.3 percent year-over-year decrease in total US imports for the month. But the respite will be short-lived, with annualized growth returning in June, according to the monthly forecast from the National Retail Federation (NRF) and Hackett Associates.

Other analysts, such as Jock O’Connell, an international trade economist, think the NRF forecast is too robust and that higher interest rates, rising consumer prices, and an acceleration of energy and food costs — thanks in part to the Russia-Ukraine war — will dampen summer imports. US consumer costs in March jumped 8.4 percent, the fastest inflation rate since the early 1980s. Stalling factories delay exports US trucking volumes will fall because of reduced Chinese container exports, according to Hamid Moghadam, chairman and CEO of industrial real estate firm Prologis.

“Because Shanghai is shut down, there are going to be fewer containers that are going to be redistributed, and that will affect trucking volumes,” Moghadam said during the company’s first quarter earnings call April 19. “But it’s not because of a lack of demand from the ultimate consumer. It’s because of the lack of supply by the producers. And I think that’s a problem that people will start talking about next quarter in a big, big way.”

Kuehne + Nagel is already talking about it. CEO Detlef Trefzger on April 26 warned that prolonged Chinese lockdowns threaten the ability of importers to start shipping goods in the next three months, ahead of the winter holiday shopping season. While the lockdowns and slowed production during two weeks of Chinese New Year celebrations pulled China export volumes down 15 percent in recent weeks, Trefzger said the greater concern is how long the lockdowns would continue in Shanghai and the greater Beijing area, where there is a large concentration of manufacturing.

In spring 2020, US retailers slashed Asian orders due to COVID-19 fears only to be surprised by American consumer appetites, setting off a scramble to fill those canceled orders and lock in shipping capacity. The longer the Chinese lockdowns of 2022 last, the more intense the scramble will be for manufacturing and transport capacity — even if consumer sentiment dampens.