Chinese container port congestion could soon worsen product shortages, forecasts show

As much as U.S. west coast container ports are struggling with imports, congestion is even worse in China and could lead to further product shortages and delays for both businesses and consumers in a “global whiplash effect,” according to an analysis by supply chain visibility provider project44.

The data shows that container imports are already clogged off California, with the ports of Los Angeles and Long Beach setting a record in September of 73 cargo ships lying at anchor, awaiting their turn to unload freight. 

 That backlog is already making it difficult for businesses to deal with the annual holiday sales surge and global post-Covid recovery. But the challenge is even greater when they factor in freight flows in Asia. As of October 7, there were some 386 ships either anchored or moored off the busy Chinese ports of Shanghai and Ningbo, of which 228 were cargo ships and 45 were container vessels, Chicago-based project44 said.

Those traffic jams affect supply and demand halfway around the world because the freight passing through Chinese ports accounts for 40% of global container trade; Shanghai is the world’s busiest container port and Ningbo is just behind in third place.

According to project44, basic reasons for the berthing delays include lingering backlogs from the Covid-19 closure of Ningbo port, the impact of Typhoon Chanthu, and the current Golden Week between October 1 to 7. But shippers are especially concerned because Chinese ports are not making significant headway in dealing with the excess cargo, the firm said.

Those delays can be measured by container rollover rates, which are defined as the percentage of containers that miss their scheduled sailings. Project44 data show that those rates have stayed high, with September numbers reaching 36% at Ningbo, 41% at Hong Kong, and 37% at Shanghai.

 Looking into the future, the report found that freight could soon slow down even more, triggering a potential “global whiplash effect,” according to project44’s VP of Supply Chain Insights, Josh Brazil. He pointed to a power-shortage crisis caused by a national electricity ration imposed by Beijing. Facing mandatory power limits and shortages of coal reserves, manufacturers may be forced to scale back just as demand heats up.

“We can expect these growing backlogs across Chinese manufacturers and ports to exacerbate imbalances at U.S. and European ports,” Brazil said in a release. “As it becomes increasingly hard to get inventory from factory floors to end-consumers, competition for shipping capacity will heat up. At this point, pretty much everybody is feeling the pain. The challenge is less about achieving full inventory -- that ship has sailed -- and more about adapting to, and planning for, future disruption.”

In fact, retailers are already seeing three consequences of these forces: lower availability, less speed, and higher costs, according to comments from Simon Geale, executive vice president at Proxima, a supply chain and procurement consulting firm. But although those impacts are hitting the whole market, they have different impacts on various vendors.
 
“Because of problems with capacity, there are historic highs in container prices and lows in service levels,” Geale said. “You see some companies like Peloton that have been using planes to fly in equipment. They are a low volume, high margin, premium product and because the product is more expensive, they can absorb the cost and take that hit. It is the opposite when you look at retailers with high volume and low margin such as kids’ toys, textiles, or low-end electronics. Most of these are coming out of congested ports and cannot afford that optionality to switch transportation methods.”
 
Despite a wide awareness of those problems, solutions may be long in coming, he said.  “We are pushing more and more into a system that isn’t working. Many are focusing on when things will get better and the answer is no time soon. Supply chain issues in terms of logistics may clear up by next year and raw materials problems in chips could push some of those supply chains into 2023,” Geale said.