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The Problem of Supply Chain Ports in China and the Strict COVID-19 Regulations in the Country

Supply chain ports in China are getting congested due to the COVID-19 regulations in the country, such as lockdowns, quarantines, and restrictions. 

This has created delays in the operations of the supply chain ports in China and resulted in the increased prices of air freight, with some going as high as 50% of their previous price. Even before the Lunar New Year festival today, rates for air freight have already increased. Some shipping firms have also temporarily stopped operating in order to celebrate the holiday. All the workload was then passed on to the already overwhelmed supply chain ports in China.

The Effects of the Zero-COVID Strategy

The Zero-COVID Strategy was implemented by government officials to curb COVID-19 outbreaks. It involves executing strict lockdowns and urgent mass testing as soon as cases of COVID-19 are reported in the area.

If identified as high-risk contacts, citizens are not allowed to leave their building or, sometimes, even their own rooms. Other countries have eased their regulations regarding the implementation of lockdowns, but most do not expect China to follow suit. 

There were incidents last year, such as in the city of Xi’an, where the whole city was placed under lockdown after 150 COVID-19 cases were identified. This negatively affected the 13 million residents of the city because they were restricted to staying inside their homes. Some were not able to access goods and services even though they were essential. A pregnant woman was not admitted to the hospital just because she did not have a negative COVID-19 test result. This sadly resulted in a miscarriage. 

The city of Zhengzhou experienced the same fate. All the residents of the city were subjected to COVID-19 testing after there were 11 reported cases of COVID-19. 

In the first week of January this year, the operations of many supermarkets were halted and forced to undergo lockdowns. This was brought about by the identification of the COVID-19 virus in the fruits being sold that came from Vietnam. At least nine cities across Zhejiang and Jiangxi provinces were involved in this predicament.

The volume of international flights is still way below what it was before the COVID-19 pandemic happened. Individuals coming from other countries and entering China are still strictly required to undergo a long quarantine period.

Government officials have been able to monitor individuals through the use of track-and-trace applications, which are required for everyone. When COVID-19 positive cases are detected, all their close contacts can be identified with ease. They are then put under quarantine as soon as possible.

In terms of the number of COVID-19 cases, China has fared relatively well compared to other countries, such as the USA. The total number of reported COVID-19 cases in China as of now is more than 100,000 since the start of the pandemic. In contrast, the USA reported one million COVID-19 cases in just one day last month. 

The number of reported deaths due to COVID-19 in China is less than 5,000. 

Although the number of COVID-19 cases is believed to be underestimated, especially in the very first outbreak that occurred in Wuhan, citizens have been able to enjoy a more normal life now. 

Liang Wannian, an official at the National Health Commission, said that “there is still no ability to stop single local cases from appearing, but we have the ability and confidence to quickly extinguish the outbreak when a local case is found”.   

However, citizens have felt the brunt of the Zero-Covid Strategy. Even if the economy did grow in 2020, it was still hampered by the decreased economic activity brought about by the frequent lockdowns. Many businesses and factories still had to close down since losses were too impractical to continue their operations any further.  

Citizens were denied urgent healthcare needs because the Zero-Covid strategy did not allow them to leave their residences for any reason. Many families have also been apart for too long because of travel restrictions, making them unable to go home.

Is the Zero-COVID Strategy to Blame for the Situation of the Supply Chain Ports in China?

Shipments in the supply chain ports in China

The supply chain ports in China were not spared from the COVID-19 regulations imposed by the government officials. 

There have been COVID-19 cases reported in Shenzhen, Tianjin, and Ningbo, which are key port cities. The industrial hub of Xi’an was affected as well. These have pushed officials to implement lockdowns and other public health measures to curb the transmission of COVID-19 within the cities.

In December 2021, the traffic in the Ningbo-Zhoushan port was disrupted by a COVID-19 outbreak. This is the third busiest port in the world. Interventions taken to address this traffic include diverting shipments to Shanghai, which is the world’s busiest port. However, the situation in Shanghai wasn’t any better because it was already experiencing congestion and delays. The port of Shanghai could not handle the additional influx of shipments either. 

Because of the re-routing of shipments to Shanghai, the port had an 86% increase year-over-year in blank sailings. This means that a vessel has either skipped one port or that the entire voyage has been canceled.

The founder and chairman of the supply chain risk intelligence firm Supply Wisdom, Atul Vashistha, said that “although ports are still open, current restrictions – like mandatory quarantines and testing – continue to slow down transport and cause delays”. 

Continuing the Zero-COVID strategy, done in preparation for the Beijing Winter Olympics, is proving to be troublesome. The start of this year is not looking any better than how 2021 chaotically ended. Different products remain in the ports and ships are not allowed to enter because of the stringent requirements that include a negative result on a RT-PCR COVID-19 test and the re-routing brought about by the sudden closure of ports.  

Levine from Freightos said that “all eyes were on China and the impact that strict outbreak containment measures might have on logistics”. 

Congestion in Supply Chain Ports in China Results in More Expensive Air Freight Rates

Sea shipping spot rates increased by as much as 4% for the distance between Asia and the U.S. West Coast. However, Levine believes that there won’t be any more increases in the near future. This forecast holds true despite temporarily halting manufacturing activities and factories for the Lunar New Year holiday.

The same is not true for air cargo rates. These rates were expected to continue increasing because of the demand for such services, especially as the holiday season approached. This was coupled with the inability of the supply chain ports in China to accommodate all the incoming shipments. 

According to the Freightos Air Index, in mid-January of this year, the rate from China to North Europe cost $9.59 per kilogram. This was close to a 50% increase from the $6 per kilogram rate when January started.

The Ocean Network Express and Hapag-Lloyd, two major shipping companies, stopped their operations so that employees could celebrate the holiday. This put more pressure on the supply chains that were already grappling with the demand. 

As the Omicron surge took over, the progress obtained from the easing of backlogs in the supply chain was threatened. Paul Gruenwald, the chief economist at S&P Global Ratings, said that “this is going to slow the improvement we’ve been seeing over the last couple of months”. 

The Zero-COVID strategy has been met with much opposition because of the unfavorable living conditions that it brings about for citizens in the affected areas. Apart from that, the disruptions in the supply chain ports in China also have consequences for countries all over the world since China contributes to much of the global supply of goods.

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