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Hitherto biggest lockdown in China threatens rates, putting pressure on supply chains

A surge in the number of Covid infections in major Chinese city Shanghai has prompted authorities to shut it down. Shipping analyst says this could send demand and spot rates down in the short term but create an upward pressure afterwards.

Photo: Hector Retamal/AFP/Ritzau Scanpix

A new coronavirus shutdown in Shanghai, the biggest in China since the pandemic began, sent oil prices down on Monday and raised concerns about the impact on China’s industrial exports and the shipping industry.

Chinese authorities will shut down the major city one half at a time, but even before the lockdown took effect Monday morning, authorities warned that shipping could be hit hard.

”If Shanghai came to a complete halt, there would be many international cargo ships floating in the East China Sea,” Wu Fan, a medical specialist with the city’s pandemic response force, said Saturday as cited by CNN.

The shutdown will initially last nine days while Chinese authorities conduct Covid-19 tests, just as public transportation will be suspended, and businesses and factories will have to halt operations or work remotely.

If this is widespread it will mean demand slow-down in the short term and downwards spot rate pressure, followed by a surge and upwards pressure

Lars Jensen, CEO, Vespucci Maritime

Specifically, according to the BBC, it will take place in two phases, with the eastern part of the city being placed under restrictions first until Friday, and then the western part.

Slowdown

The disruption in the wake of Shanghai’s shutdown comes shortly after the same thing happened in the port city of Shenzhen. The lockdown posed challenges for all shipping companies as well as congestion and delays at ports due to restrictions and testing requirements.

According to shipping analyst and CEO of Vespucci Maritime Lars Jensen, the shutdown in Shanghai could mean a slowdown in global demand in the short term and thus a drop in rates.

”If this is widespread it will mean demand slow-down in the short term and downwards spot rate pressure, followed by a surge and upwards pressure,” he writes on LinkedIn.

Fear and optimism

Recent weeks and the Shenzhen shutdown have created turmoil in the shipping and logistics industry, where fears of new Covid-related restrictions at Chinese ports have shot down hopes of an early normalization in the container market somewhat.

Among others, logistics company DSV’s chief executive, Jens Bjørn Andersen, has expressed concern that new Chinese closures will delay normalization of the pressured freight market until sometime in 2023.

If Shanghai came to a complete halt, there would be many international cargo ships floating in the East China Sea

Wu Fan, medical specialist with Shanghai's pandemic response force

However, a different attitude was expressed by Anne-Sophie Zerlang Karlsen, head of Operations in Asia Pacific at Maersk, who last week told ShippingWatch that she was more optimistic about the Chinese major ports.

”I’m more optimistic. I’ve also read in several media that some of the major ports are expected to shut down. I’m not seeing any signs of that,” she said.

English edit: Jonas Sahl Hollænder

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