China zero-Covid lockdowns, CNY vacation impression provide chains, ports

Streets in Tianjin, China, empty on January 10, 2022 as the city goes into partial lockdown following a surge in Omicron cases.

Geno Hou | Future Publishing | Getty Images

Covid lockdowns, quarantines and restrictions are causing a backlog at some of China’s major ports, causing “chaos” and increasing air freight by up to 50% in some cases, analysts tell CNBC.

Ahead of the extended Lunar New Year holiday in China, air freight rates have skyrocketed and some shipping companies have suspended services, putting a renewed spotlight on congested supply chains.

It comes as China presses ahead with its zero-Covid strategy – meaning a recent spike in infections has led to lockdowns and restrictions in major port hubs and major cities across the country.

“Although ports are still open, current restrictions — such as mandatory quarantines and testing — continue to slow transportation and cause delays,” Atul Vashistha, founder and chair of supply chain consultancy Supply Wisdom, told CNBC.

China’s top priority right now is to limit the spread of Covid cases ahead of next month’s Winter Olympics and the upcoming Lunar New Year, he added. However, the resulting curbs at the ports have also created a certain “chaos”.

“Products are piling up while ships are banned from entering. Between negative PCR test requests and last minute rerouting, 2022 starts as 2021 ended – chaos,” Vashistha said, referring to the polymerase chain reaction Covid tests.

Cases have been reported in the main port cities of Shenzhen, Tianjin and Ningbo, as well as in the United States Industrial center of Xi’an, spark arrestors and other curbs.

Infections were also reported in other cities, e.g Dalian and anyang.

The capital Beijing reported its first locally transmitted Omicron infection on January 15. On Sunday, less than two weeks before the Winter Olympics, Beijing authorities introduced new restrictions to stem a recent outbreak after nine locally transmitted cases were detected in Beijing the day before.

the Ningbo eruption in December also triggered some curbs and disrupted traffic in the world’s third busiest port, Ningbo-Zhoushan.

Operations have now largely resumed, but shipments have been diverted to Shanghai — the world’s busiest port — causing congestion and delays there too, Judah Levine, head of research at freight-booking platform Freightos Group, told CNBC.

Supply chain tech firm project44 said the shift from the Ningbo port to Shanghai “backfired on some carriers” as congestion mounted in Shanghai. As a result, Shanghai saw an 86% increase in empty runs year-over-year, it said, referring to an industry term for when an airline decides to skip a particular port or the entire journey altogether.

In an email to CNBC last week, Freightos’ Levine said all eyes are on China and the impact strict outbreak containment measures could have on logistics. “Steps have been taken to quell the spread of positive cases, which have been detected in multiple locations including Beijing, Shenzhen, Tianjin, Dalian and several others,” he said Jan. 19.

Rising air freight rates

Spot prices for ocean shipping en route from Asia to the U.S. West Coast were up 4%, Levine said, but they’re unlikely to rise much further because production is on hold as the Lunar New Year holiday approaches and factories shut down for a while be closed for a longer period of time.

However, air freight rates are still rising, he added.

“With enough time to still move cargo by air, the pre-holiday rush coupled with pandemic-constrained capacity is driving air freight rates higher,” he said, adding that the Freightos Air Index showed that the Rate from China to Northern Europe was $9.59 per kg in mid-January – up over 50% from under $6 per kg in early January.

The Lunar New Year is China’s biggest holiday, and hundreds of millions of people traditionally travel back to their hometowns from the cities where they work.

According to Vashistha, some major shipping companies such as Ocean Network Express and Hapag-Lloyd have suspended their services and operations even earlier than last year to celebrate the season. That puts a strain on already fragile supply chains, he said.

This latest shock comes at a bad time for global supply chains. They were already stressed out by the holiday season combined with the omicron variant, but port troubles in China take these complications to a new level.

John Ferguson

economic impact

Shipping costs have fallen in recent months as supply chain backlogs have reduced, but the recent Covid surge and possible port closures will dwarf any progress made, said Paul Gruenwald, chief economist at S&P Global Ratings.

“I would say that this will slow down the improvement that we’ve seen over the past few months,” he told CNBC’s Squawk Box Asia on Thursday.

Impact of China’s zero-Covid on the Winter Olympics

China’s zero tolerance for Covid will have a major impact on global supply chains, said John Ferguson, globalization, trade and finance practice leader at think tank Economist Impact.

“This latest shock comes at a bad time for global supply chains. They were already stressed out by the holiday season combined with the Omicron variant, but port issues in China are taking those complications to a new level,” Ferguson said.

“China’s zero-Covid strategy is critical as further outbreaks will lead to more closures or lockdowns in key areas,” he told CNBC. “With China approaching the Winter Olympics, as well as major political events later in the year, China is unlikely to abandon its Covid strategy in 2022.”

One bright spot is that many companies have already prepared for stressed supply chain scenarios and are now implementing their plans, he said.

Still, not everything will go smoothly.

“While global companies have become more nimble during this crisis, we should still expect some delays from this latest round of supply chain stress,” he added.

Supply Wisdom’s Vashistha summed it up: “Combine the closures with the increase in Covid-related port congestion, China’s zero-tolerance policy and reduced air transport capacity and the problem becomes even clearer: cargo continues to increase, without there being any way to move it or places to go.”

Hong Kong has to maintain zero-Covid coverage for now: Authorities advisor

Hong Kong must stick to its zero-covid strategy until more people are vaccinated, a government adviser told CNBC on Wednesday.

“If 95% of our eligible population are fully vaccinated with three doses, there is a chance we can open our border,” said Yuen Kwok-yung, who is part of the Hong Kong Expert Advisory Committee on Covid-19.

The Chinese city is far from achieving this goal. Only 68.6% of the total population had received two doses of a vaccine by Wednesday. according to government information. About 322,781 people, or about 4.4% of the population, received their third injection.

One way to increase vaccination rates is to require a vaccination certificate for daily living, said Yuen, who also heads the microbiology department at the University of Hong Kong.

“Maybe this is [the] This is the only way to ensure, as in Israel, that a high level of vaccination coverage is achieved, “he said. Fully vaccinated people in Israel are a “green pass” that allows them to enter indoor locations such as restaurants, gyms and cinemas.

Zero Covid Strategy

At the moment, Hong Kong cannot change its strategies, Yuen told CNBC “Squawk Box Asia.”

“At this point it is the same. We have to continue with our current close to zero policy,” he said.

Hong Kong requires people who enter the city to Quarantine for up to 21 days and do multiple Covid-19 tests“Measures, Yuen said, are necessary to control the source of the infection.

But the city’s zero-covid approach is that too biggest frustration for overseas companies operating there, an analyst told CNBC on Tuesday.

However, Yuen said the city has no plans to maintain zero-Covid indefinitely only until it hits “adequate” vaccination rates.

“It’s impossible to keep it going for more than three years,” he added. “I think the government has to set a deadline for the coming years by which everyone has to have a vaccination certificate … to get around.”

Vaccination is compulsory for some activities in Hong Kong, but the borders for the unvaccinated are much looser than in places like Israel or Singapore.

Hong Kong has reported 12,548 confirmed Covid cases since the pandemic began, including 34 cases of the Omicron variant. according to government information on Wednesday.

– CNBC’s Weizhen Tan contributed to this report.

Hong Kong’s zero-Covid method frustrates companies, says analyst

Hong Kong’s strict zero-covid approach is the biggest frustration for overseas companies operating there, an analyst told CNBC on Tuesday.

The city is sticking to strict Covid measures – with up to three weeks of mandatory quarantine and other testing requirements – even if authorities have relaxed similar restrictions elsewhere.

Asked how Local politics and Covid measures are hurting business confidence in Hong Kong, the founder of publishing and research firm Big Brains said the latter was the bigger concern.

“I think it’s more frustrating right now in Hong Kong, especially with overseas companies… keeping up with its zero-covid strategy – and its announcement that it is going to stand up for [the] Rest of China before it opens up to the rest of the world – which makes business people here, their families, and their general lifestyle quite frustrating, “said Simon Cartledge.

“It’s been a long time,” he said. “It is very difficult to travel.”

The Hong Kong and mainland authorities have worked towards the establishment Quarantine-free travel between the two regions. China has one too Zero Covid Strategy.

Hong Kong again this week tightened measures as Omicron cases increased worldwide.

The city has stuck to its zero-covid approach, although the number of cases is small compared to other places in Asia. According to Our World in Data, the city has a 7-day moving average of 0.72 daily cases per million population as of December 19, compared with 66.75 for Singapore and 1.14 for Japan.

Governments in the Asia-Pacific region, including Singapore and New Zealand, initially took an aggressive approach through bans and tight restrictions on most of the pandemic. But many countries around the world have shifted to a “living with Covid” approach as vaccination rates have increased.

However, Allan Zeman, chairman of property developer Lan Kwai Fong Group, argued that strict Covid rules helped Hong Kong stay safe.

“But that has worked the other way around, it has helped Hong Kong because we can walk freely on the streets. Everyone wears a mask. It’s very, very important, ”he told CNBC’s Street Signs Asia. “I think in general we are safe and it is different from the horror stories I am currently watching in Europe and the US.”

Several Cities across Europe are reintroducing restrictions. In the UK, cases double roughly every two days as London hospital admissions increase. On Monday, the U.S. Centers for Disease Control and Prevention said Omicron is now that dominant strain of Covid in the USAwhich accounts for 73% of the sequenced cases. The average daily number of cases in New York City more than doubled for the week ending Friday, December 17.

Zeman said consumer spending has been “incredible” over the past six months as fewer people are leaving the area. Hong Kong retail sales rose for the ninth straight month in October, up 12% year over year to Hong Kong dollars ($ 3.94 billion), according to government data in November, according to Reuters.

Attack on the “five eyes”

Zeman, who was running for the Hong Kong Legislative Council this week, defended changes to the Hong Kong electoral system and attacked the Five Eyes intelligence nations who criticized the revision.

the Five eyes alliance, consisting of Australia, Canada, New Zealand, Great Britain and the USA, made a statement on Monday and expressed “serious concern about the erosion of democratic elements” in the Hong Kong electoral system.

Previously, half of the representatives on the Hong Kong Legislative Council were directly elected by regular Hong Kongers; according to new rules, was about a fifth. A Electoral Committee which previously had limited powers, now selects almost half of the council representatives directly, and it screens anyone who wants to run for the other places.

Zeman, who lost his race but is the economic advisor to Hong Kong Chief Executive Carrie Lam, said, “I would defend Hong Kong by saying that Five Eyes should focus on their own countries and look at their systems first, which is what I do do not think works very well. I believe this is a new system for Hong Kong that can really work. “