Global logistics deadlock moves from Suez to Shenzhen

HONG KONG – As Western economies come back to life, a new wave of Covid-19 clusters in Asia – where vaccination campaigns are still in their infancy – is creating new supply chain bottlenecks global threat, threatening to drive up prices and weigh on post-pandemic recovery.

An outbreak at one of the world’s busiest ports in southern China has resulted in shipping delays around the world, while infections at key points in the semiconductor supply chain in Taiwan and Malaysia exacerbate a global chip shortage that has hampered production in the automotive and tech industries.

The new headaches add to inflation concerns, after China and the United States this week recorded their largest annual increases in ex-factory and consumer prices, respectively, in addition to a decade. If such problems persist and worsen, they could weigh on global growth.

For much of the past year, China, Taiwan and many other parts of Asia have controlled the pandemic better than the United States and Europe and have limited some of the economic damage. But as vaccination rates have increased in the West, governments have started to reverse restrictions and economies are recovering.

Vaccination efforts in Asia, meanwhile, have lagged behind, and authorities have largely kept tighter border controls in place to keep the virus out. Yet the Covid-19 has spread. Thailand has been hit in the past two months by the worst wave of new cases on record, while Vietnam – an increasingly popular manufacturing center that has largely avoided previous waves of infection – has also suffered.

Low vaccination rates in Asia could keep social distancing rules and travel bans in place, disrupting manufacturing and suppressing consumer spending.

“This comes at a really fragile time when we are only just starting to see the recovery in world trade picking up steam,” said Nick Marro, Hong Kong-based senior analyst for world trade at the Economist Intelligence Unit.

A medical worker in protective gear administers a Covid-19 test in Zhuhai, China on June 8.


Photo:

Chinese Daily / Reuters

In Yantian, a container port in southern China’s Shenzhen city, an epidemic among dockworkers has virtually crippled traffic, further straining an international shipping industry struggling with a persistent shortage of empty containers and a weeklong blockage in the Suez Canal earlier this year.

Some ships have had to wait up to two weeks to pick up cargo at Yantian, with around 160,000 containers waiting to be loaded, brokers said. The cost of shipping a 40-foot container to the west coast of the United States has jumped to $ 6,341 according to the Freightos Baltic index, up 63% year-to-date and more than three times the price a year earlier.

Yantian handled nearly 50% more cargo last year than the Port of Los Angeles, the busiest US container port, and in the first quarter of this year saw container volume increase by 45% compared to the previous year. Activity at the port, which handles more than 13 million containers per year, is now at 30% of normal levels and delays could persist for several weeks, said Hua Joo Tan, Singapore-based analyst at Liner Research Services.

Lars Mikael Jensen, network manager of AP Moller-Maersk A / S, the Danish shipping giant, said the backlog in Shenzhen would be felt globally, affecting goods sold at Walmart. Inc.

and Home Depot Inc.,

companies that have established logistics bases around the port.

“It’s a huge and very busy port and when you get delayed there it has ripple effects on supply chains around the world,” said Jensen, whose company is hijacking 40 container ships. from Yantian to other ports including Hong Kong. The blockade of the Suez Canal lasted for a week and it took 10 days to clear the backlog, he said.

“There is no end in sight here. The Chinese will keep everything closed until they are certain that Covid will not spread, ”he said.

Meanwhile, Taiwan, which accounts for one-fifth of the world’s chip manufacturing capacity, including a significant proportion of chips used in the automotive industry, is suffering its worst Covid-19 outbreak since the start of the pandemic.

At King Yuan Electronics Co.

, one of the island’s largest chip testing and packaging companies, more than 200 employees tested positive for the virus this month, while another 2,000 workers were placed in quarantine, reducing thus the company’s revenue this month of about a third.

Meanwhile, other nearby semiconductor companies are grappling with their own workplace epidemics, according to officials in Taiwan’s Miaoli County, where recent clusters have focused.

Semiconductor manufacturing in Taiwan Co.

, which alone accounts for 92% of the world’s most sophisticated chip production, says it has yet to be affected, but the outbreak is occurring next to its headquarters in Hsinchu, Taiwan.

Given the already crippling global deficit in the chip industry, epidemics in Taiwan’s tech sector “of course … will make shortages worse,” said Brady Wang, semiconductor analyst at Counterpoint Research.

Malaysia, home to a number of foreign-invested factories involved in chip manufacturing and the production of capacitors, resistors and other key modules used in consumer electronics and cars, has also seen its activity. production boom by a wave of Covid-19 cases.

Infineon Technologies AG

, a German semiconductor maker with two factories in Malaysia, was told by health officials to shut down one of its factories earlier this month, which delayed some chip shipments. The company’s other global factories are operating at high capacity and are unable to take over, according to Gregor Rodehueser, a spokesperson for the company.

After employees test positive for Covid-19 at another Malaysian factory operated by Taiyo Yuden Co.

, a Japanese maker of electronic and semiconductor components, the plant extended the plant’s shutdown for an additional 10 days, until Monday, as a precaution.

Chinese Covid-19 vaccines offer relatively low levels of protection compared to some of their foreign rivals. Here’s why China is joining other countries in considering vaccine mixing and pairing as the key to overcoming multiple vaccination challenges at once. Illustration: Ksenia Shaikhutdinova

In total, the Malaysia Semiconductor Industry Association says the lockdown will cut production by 15 to 40 percent.

“It’s going to disrupt the supply chain somewhere, one way or another,” said Wong Siew Hai, chairman of the group.

The semiconductor shortage has spread to small businesses, which are feeling the impact of slower deliveries and higher prices.

“I’ve had three cars with electrical issues and the parts are out of stock with no release date,” said Hector Martinez, who runs Rye Auto Care in Rye, NY. “Anything related to electronic parts is coming in Tires are scarce and parts prices have risen by 20% in the last two months. “

A freighter is seen near Yantian Port in Shenzhen, China in May 2020.


Photo:

Martin Pollard / Reuters

Beyond hitting tech and automotive supply chain companies, the disruptions could add headwinds to China’s export sector – one of the strongest pillars of its economic recovery – and add to global inflationary pressures.

China has played a key role in suppressing global inflationary pressures, as manufacturers have largely absorbed the growth in input costs so far, said Shen Jianguang, chief economist of the JD online retail market. com. Inc.

finance unit in Beijing. But the latest port disruptions risk translating into higher consumer prices around the world.

The outbreak in China’s most populous home province of Guangdong, Shenzhen, which is responsible for about a tenth of the country’s economic output, has prompted some manufacturers there to raise prices and even temporarily halt production. production to avoid further erosion of their profit margins.

“It’s quite terrifying,” said Zhu Guojin, consultant for logistics company Jizhi Supply Chain Service Yiwu Co., “This is the first time we’ve seen a drop in port capacity on such a scale in China.”

As shipping prices to the United States have increased, Zhu says most of his customers, including Amazon.com Inc.

sellers and some US importers pay.

“Over the past year, many customers delayed shipping in hopes that the cost might come down. But that’s no longer the case, ”Zhu said. “Most don’t seem to care about prices anymore.”

Some government officials and analysts have played down the impact so far.

Chinese Commerce Ministry spokesman Gao Feng said on Thursday that the resurgence of Covid-19 in Guangdong province has yet to have a pronounced impact on foreign trade. Of the province’s roughly 2,000 exporters, more than half said new orders were even higher than a year earlier.

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Have you seen higher prices or limited availability on items from Asia? Join the conversation below.

Semiconductor analyst Mr. Wang is optimistic about the impact of the Taiwan epidemic on chip production, assuming things don’t get significantly worse.

We don’t know when the tensions will ease. Because many governments in Asia aim to eradicate their Covid-19 cases, even if it means short-term economic hardship, the supply chain situation could get worse before it gets better.

“Right now, the most important problem is to contain the epidemic in these specific companies and prevent it from spreading further,” said Patrick Chen, head of research in Taiwan for CLSA, a house of brokerage. “If they can’t, we’ll face a much more serious disruption.”

Some companies could also benefit from harassed supply chains. Shares of several Chinese shipping companies, including Chinese state-owned Cosco Shipping Holdings Co.

, one of the world’s largest cargo operators, saw its Hong Kong-listed shares rise 14% on Thursday to their highest levels in more than a decade in hopes of a sustained rise in freight rates of containers.

Write to Stella Yifan Xie at [email protected], Costas Paris at [email protected] and Stephanie Yang at [email protected]

Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8


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