China’s reopening provides differing opinions on U.S. import activity

随着中国经济的逐步开放,following a months-long shutdown in Shanghai, which underwent a full lockdown to quell the rising number of positive Covid cases there, the impact on global supply chains remains open-ended, with some industry stakeholders maintaining it will have a significant downstream impact on United States-bound import patterns and others thinking the impact will not be as bad as some expect.

Glenn Koepke, GM, Network Collaboration, for Chicago-based FourKites, a provider of real-time tracking and visibility solutions across transportation modes and digital platforms, explained that there are a few things to consider relative to China’s reopening.

“When Shanghai shut down, other Chinese ports picked up some of that volume,” he explained. “It is unlikely that there is a massive backlog of cargo waiting to depart and, instead, we will see a quick spike in volume, but it will quickly return to normal levels. Already, companies have been carrying extra inventory to brace for ongoing and future disruptions. As publicly traded companies release quarterly earnings, this will be noticeable within their inventory costs for Q2. Order volumes will have a longer lag than usual given this approach to have more inventory on hand now to fulfill orders that will occur in the near term. This is driven by Shanghai, inflation, the US west coast labor agreement and companies getting into peak summer seasons.”

What’s more, Koepke explained that port operations and shippers have become accustomed to the bottlenecks when exporting and importing goods, noting that the rise of export volume out of Shanghai will be seen on the other end of final destination with a very minor increase in volume, solely driven by shippers re-rerouting cargo from other ports. And in the event a major bottleneck occurs at a destination port, he said that steamship lines will slow steam to avoid dwell and the number of vessels waiting at the port.

A market update issued by San Francisco-based freight forwarding and customs brokerage services provider Flexport, said that a ramp-up period is expected for a few weeks after the early June reopening in Shanghai, which is expected to be followed by more normal shipping and manufacturing operations out of China. Flexport cited a Loadstar report, observing that a caveat with ongoing restrictions intact is that it could take weeks or months to return to a normal level of output volumes and shipper container volumes.

Larry Gross, president of Gross Transportation Consulting, explained that at least from an inland logistics and supply chain perspective, the China situation is somewhat overhyped. The reason for that, he said, is that what it has done is allowed ship queues to be worked down a little bit, leaving it unclear how much volume has actually been delayed as opposed to just diverted to other ports in China.

“Volumes out of Shanghai are down, but volumes out of other places are up so maybe the supply chain there is a little more agile than we are assuming,” he said. “But even if that is not the case, then all that has happened is that the ship queues have come down a little bit and when this alleged tidal wave of volume comes back, well, the ship queues are going to grow a little bit more. But it has no impact on the inland, because that is strictly a function of how much is coming through the ports, which is relatively constant. The ports are astute enough that this time they are not going to let the tidal wave overwhelm them. They are going to say ‘OK, here is where you park.' From my standpoint, the only effect, I am expecting to see, if this happens, is a change in the number of the ships queuing. I doubt the number of ships queuing [in U.S. West Coast ports] will approach 100 or so like before, because part of the reason it got so bad is that the ports allowed themselves to get clogged up and they are not going to do that this time and throughput is going to be much better.”

While Gross painted an optimistic picture, Doug Waggoner, CEO for Chicago-based 3PL Echo Global Logistics, observed that as inbound cargo from China starts to reach U.S. shores, it could lead to a 2020 redux, in the form of major backlog at U.S. ports and not enough trucks on the West Coast to move all of that freight.

“Getting those trucks there will disrupt the national network and cause shortages elsewhere…and we will be right back in the situation that we have been in for the last couple of years,” said Waggoner.

And Mike Regan, chief relationship officer for TranzAct Technologies, noted that one of the major concerns about the timing of a potential slowdown or shutdown at the ports is that it could coincide with increased freight flows from China based on the backlog of containers (estimated to be in the 4 to 6 million range) that are there because the port activity in Shanghai has been affected by Covid induced restrictions for almost two months.

“Approximately 800,000-to-850,000 containers move through the port on a weekly basis,” he said. “And other Chinese ports such as Ningbo and Shenzhen are also reporting significant backlogs. Add it all up, and you have the potential for a massive number of containers to be heading to the West Coast Ports at the same time when those ports could be reeling from the ILWU-PMA negotiations.”