Feature: Asian lockdowns prompt further uncertainty in container market

Prolonged factory shutdowns following coronavirus pandemic outbreaks in China have stoked concerns of escalating port congestion and supply chain backlogs, sources said.

Shanghai, among other regions in China, is under a lockdown with strict testing and checking protocols, resulting in disrupted trucking activity and strained port operations. While lockdown protocols have been largely lifted in Hong Kong and Shenzhen, inland transportation remains a challenge, sources said.

As of April 12, Platts cFlow trade analytics software showed 315 vessels waiting in the Shanghai/Ningbo region queue and 141 in the Hong Kong region.

"The impact of the lockdowns will depend on which way the situation is going to go. ... " a shipper said, and speaking of the ports, adding, "My biggest concern is even when they're open, we don't have enough truckers because they have to go through several tests, and face severe bottlenecks."

A logistics pricing manager said: "We have already started receiving updates from liners ... on delays and non-performance of shipment from these locations. Port closure would definitely worsen the situation."

He added that the cargo pileup will lead to a huge backlog, further distorting the supply-demand balance.

Meanwhile, some industry participants spotted a silver lining in the situation and expected the slowdown in trade to give carriers room for operational restructuring.

This sentiment has been echoed across the market in what appears to be familiar territory following the closure of the Yantian port complex in 2021 amid a coronavirus outbreak.

Despite the weaker demand picture and an increased number of void sailings as carriers sought to keep volume allocations as high as possible, delays in European ports were still present, with the same issues of slow movement of goods to the hinterlands a problem, potentially impacting the carriers' and ports' abilities to realign their operations to facilitate easier movement of goods.

"Shutdowns in China could assist to give ports in Europe and Asia some breathing room. ... " an ocean carrier source said. "Shipping lines could shuffle some capacity into other trades like North Atlantic, Indian Subcontinent or Middle East."

Freight rates slide on foundering demand

One effect of origin region shutdowns, and resulting sliding cargo volumes, has been a general easing in global freight rates.

The Platts Container Rate Index, a weighted average of S&P Global's key global assessments, was assessed April 11 at $6,149.65/FEU, after losing $1,126 from the start of the year.

On a more granular level, PCR13 -- North Asia-to-West Coast North America -- is down 17.9%, or $1,700/FEU, against the start of the year. This decline is slightly less than the fall of 18.4% registered during the year-ago period but constitutes a higher dollar value than the $900/FEU lost in 2021.

On the North Asia-to-North Continent routing, a more dramatic decline has taken place, and the PCR1 was down $3,900/FEU April 12 against the start of the year as demand for Asian goods in Europe had yet to return to pre-Lunar New Year levels.

Market sentiment holds bearish, and rates are expected to regain lost ground as China comes out of lockdown and backlogged volumes begin to mount.

Bunker costs jump amid crude volatility

On top of renewed pandemic lockdowns, rising crude oil prices and the consequent increase in bunker fuel costs point to a supported freight rate environment in the near term, sources said.

With the rising cost of bunker fuel impacting operational costs for container ships, some carriers are increasingly eyeing implementing emergency fuel surcharges to tackle the volatile cost of carrying freight. This has been met with some pessimism from the shippers who see the costs for shipping as already too high, so additional costs will likely not be welcomed in the market.

Platts Bunker Charge 1 -- North Asia-to-North Europe -- rose to $556.26/FEU from $299.72/FEU a year earlier, but this remained 22.7% lower than the peak of $719.85/FEU March 9.

This comes at a time where void sailings are on the increase for ex-Asia cargoes in response to waning demand into April.

"Prices are coming off because demand is weak -- it is that simple," a European freight forwarder said. "People don't want to get caught in the delays, so why pay up when you can wait, pay less and still get goods at the same time?"

Despite blanked sailings, some in the market are slightly less optimistic about freight rates going forward and instead lay the blame firmly on the carrier side of the market.

"Most carriers have reduced capacity allotment in India despite a slowdown in global trade amid the ongoing Russia-Ukraine war and China shutdowns," a freight forwarder based in India said. "... There is no clear explanation, but they keep using capacity crunch as an excuse to quote high rates."

There are already talk of new GRIs coming in for May, another freight forwarder based in the subcontinent said.

"It's really convenient for the carriers to state that there is a space issue then introduce big GRIs," the freight forwarder said. "... Even contracted shippers aren't getting their full capacity."