COVID-19 Latest Updates

Supply Chains in China Hit as Omicron Lockdowns Are Enforced, Import Costs Increased by 10.9%, Biden-Harris Administration and USDOT Announced FLOW

By March 17, 2022 No Comments

Ocean  

Shippers canceling cargo shipments as China issues new COVID-19 lockdowns. Shippers in China are canceling cargo bookings and forwarders are moving freight to other ports as COVID-19 outbreaks expand across the country, resulting in extensive lockdowns in major port towns such as Shenzhen and Shanghai. Over the weekend, China recorded more than 5,000 new COVID-19 cases, the biggest amount in two years. While carriers and port owners claim that terminals are operating regularly, the lockdowns imply that factories, warehouses, and distribution centers are shuttered, and trucking capacity is constrained.

Customs

Customs officials restricting Ukrainian and Russian seafarers’ entry at several U.S. ports. Customs and Border Protection agents are denying Ukrainian and Russian seafarers access into several U.S. ports, fearing the sailors would try to stay in the U.S. to avoid returning home. Following Russia’s invasion of Ukraine, Ukrainian and Russian crew members working on mostly commercial ships have been denied entry into the U.S. at a number of ports, including Port Arthur, Texas; New Orleans; Port Canaveral, Fla.; and Morehead City, N.C., according to industry officials familiar with the situation. A government official close to the matter verified the refusals of entry.

Ports

Pacific Coast challenges continue. Maersk said in a customer advisory, transpacific update, that the 46 vessels heading towards Los Angeles and Long Beach have vessel wait periods ranging from 11 to 36 days. The average vessel wait time in the Pacific Northwest ports is 14 days in Prince Rupert and 28 days in Vancouver. Yard usage is at 100%, affecting scheduled sailings, with multiple missed sailings expected for this region. A prospective labor strike at Canadian Pacific Railway might aggravate the situation in Canada.

China’s covid surge, widespread lockdowns affect ports. China is experiencing its biggest Covid outbreak since the pandemic started. Shenzhen, a city of 17.5 million people, went into lockdown on Sunday, shutting down factories. Cases have increased in Shanghai, where additional restrictions have been enforced. Shanghai has the world’s largest port, and Shenzhen has the third largest. The current outbreak’s impact on trans-Pacific container shipping will be determined by whether ports and factories close together, and if so, for how long, according to George Griffiths, managing editor of global container freight at S&P Global Commodity Insights. According to Maersk, all ports in China, including those in Shenzhen, are running normally and “remain business as usual.” If Chinese ports close, prompting ships to drop calls or cancel whole sailings, it will be beneficial to U.S. ports in the near term – but they will pay for it later.

Air

Air freight rates increase due to Russian sanctions and Chinese lockdowns. Air freight rates out of China have soared in the last week, as already-strained capacity has been exacerbated by the spread of COVID-19 lockdowns in China, the restriction of Russian airspace to international airlines, and Moscow’s seizure of foreign planes. Rates to North America are up over 30%, while rates to Europe are up 22%. According to the Baltic Air Index, prices from Shanghai to North America increased 28.7% this week to $9.65 per kilogram (kg).  The pricing from Shanghai to North Europe has risen by 22.5% to $7.20 per kilogram, the highest since early January. Rates to both North America and North Europe have increased by 85%.

Vancouver invests to expand air freight. Vancouver International Airport (YVR) is looking for a partner to invest in, complete construction of, and lease a 300,000 sq ft facility that will improve air cargo operations. YVR has appointed Cushman & Wakefield as its exclusive advisor to find a partner for the Airport Commerce Centre on Sea Island, near the airport’s main terminal. The current facility has a total potential floor space of 300,000 sq ft upon completion, contiguous floor plates of over 60,000 sq ft, significant ceiling heights, and floor-load possibilities. The rebuilt Airport Commerce Centre, located near the U.S. border and close to YVR’s Cargo Village, has multimodal potential and can ease air cargo links with significant prospective developments on Sea Island.

Supply chains in China hit as lockdowns are enforced. Supply chain and logistic companies operating out of China will encounter further strain in the coming weeks as a number of new lockdown measures are implemented in Shanghai and Shenzhen. More than 100 foreign planes have been diverted from Shanghai Pudong Airport, putting pressure on bellyhold operations. According to a statement issued by the Civil Aviation Administration of China (CAAC) on March 15, the measure, which will take effect March 21 until July, would affect 106 flights operated by five airlines: Air China, China Eastern Airlines, Shanghai Airlines, Juneyao Airlines, and Spring Airlines. The changes are not likely to have an impact on freighter operations. The action is intended to relieve strain on Shanghai’s Covid management measures.

Rail

J.B. Hunt to increase intermodal container fleet by 40%. J.B. Hunt Transport Services stated on Wednesday that it intends to increase its intermodal container fleet to 150,000 units during the next three to five years. The new capacity would increase the fleet by more than 40%. J.B. Hunt will also try to put more chassis into service “depending on market demand.” The purchase strategy is part of a collaborative effort with BNSF Railway to “significantly boost capacity in the intermodal industry.” J.B. Hunt stated that the hikes reflect “current and future trends” in the company’s attempts to accommodate growing client demands.

North Dakota senator, trade groups attempting to avoid Canadian Pacific strike. According to a letter sent to Canadian Prime Minister Justin Trudeau on Tuesday, U.S. Senator Kevin Cramer, R-North Dakota, is pushing him to intervene and prevent a strike at Canadian Pacific (CP). A strike by Teamsters Canada Rail Conference (TCRC) members working at CP would have a “significant impact” on Canadian-American freight traffic, notably fertilizer shipments and Gulf Coast-bound Alberta heavy oil, according to Cramer. Members of the Teamsters union have agreed to authorize a strike if discussions between the union and CP fail to yield a new labor deal. Over 3,000 locomotive engineers, conductors, trainpersons, and yardpersons employed by CP would be affected by a prospective strike.

Potential labor lockout at Canadian Pacific (CP). CP has given the Teamsters Canada Rail Conference (TCRC) a 72-hour notice of its intention to lock out employees at 00:01 a.m. ET on Sunday, March 20 if the union leadership and the corporation cannot reach an agreement. TCRC stated that they are dedicated to working with federal mediators to obtain a negotiated solution.

Trucking

Florida company investing in truck parking space across the country. Confronted with the decades-old problem of insufficient truck parking, a Florida business is attempting to increase parking space by owning or leasing properties throughout vast sections of the U.S. Dynamic Group Investments is looking for properties that are now used for truck parking or could be developed for that purpose. The company is interested in areas throughout the U. S., with a focus on the South, Midwest, and Southeast.

Other

Industry leaders support Biden-Harris Administration, USDOT efforts to improve supply chain, increase data exchange. The Biden-Harris Administration and the U.S. Department of Transportation (USDOT) announced the commencement of Freight Logistics Optimization Works (FLOW), a significant supply chain initiative to assist in speeding up delivery times and lowering consumer prices, on Tuesday. FLOW is an information-sharing program designed to test vital freight information exchange throughout areas of the goods moving in the supply chain. It has eighteen founding participants that represent varied viewpoints across the supply chain, including private enterprises, trucking, warehousing, and logistics organizations, ports, and others – with the goal and anticipation that additional partners will join in the future.

Freight programs supported by $1.5 trillion funding bill. President Joe Biden has signed a $1.5 trillion fiscal 2022 bill that secures financing for the federal government, including the U.S. Department of Transportation (USDOT). The law, which was approved by the U.S. Senate on March 10, allocates funds to transportation authorities such as the Federal Motor Carrier Safety Administration (FMCA). The law authorizes $360 million for FMCSA’s safety operations and initiatives and $496 million for the agency’s safety grants section. The legislation specifically forbids funding the enforcement of electronic logging device rules for commercial motor vehicles transporting animals or insects. The bill includes funding for earmarks or congressionally directed spending initiatives. It also authorizes emergency assistance for the continuing federal COVID-19 response and Ukraine defense operations.

Covid-19 lockdowns at major Chinese production and transport hubs. China has just closed down the cities of Shenzhen and Changchun, and companies such as Apple supplier Foxconn Technology Group, Volkswagen, and Toyota have suspended industrial operations. More than 40 Taiwanese semiconductor and electronic component manufacturers announced suspensions in Shenzhen and Dongguan. According to logistics operators, lockdowns in Shenzhen, a crucial export center with the world’s fourth-largest container port, are edging towards possible delays.

Import costs increased by 10.9%, leading to high U.S. inflation. The cost of imported goods like oil, grains, and automobiles increased by 1.4% in February, contributing to the fastest U.S. inflation in four decades. The Wall Street Journal polled economists, who predicted a 1.6% increase. Import costs increased by 1.9% in the previous month as well. The consecutive hikes in import prices are the most in 11 years. Oil prices increased by 8.1% in February, accounting for a large portion of the increase in import costs.

Shanghai cancels hundreds of inbound and departing flights. Hundreds of flights to Shanghai were canceled on Monday due to a surge of Covid-19 infections in the city. Local officials remained tight-lipped about the potential of a complete lockdown of China’s commercial capital. All travelers going through Shanghai’s airports and train stations must produce negative nucleic acid tests within 48 hours of their trips, according to the city’s transport commission deputy director Wang Xiaojie, who also advised locals to avoid “unnecessary” travel.

Amazon and Walmart online orders likely delayed due to China lockdowns. Orders placed with global e-commerce platforms such as Amazon and Walmart may be delayed due to viral lockdowns and restrictions in several of China’s main industrial hubs. On March 13, Shenzhen, which is home to almost half of all online retail exporters in China, was shut down for at least a week to help curb a rising COVID-19 outbreak. Its 17.5 million citizens were instructed to work from home, and all non-essential businesses and public transportation were closed.

Recent developments amid Russia-Ukraine crisis:

Suspension of normal trade relations passed by House. The House readily passed legislation to sever normal trade ties with Russia in response to its invasion of Ukraine, moving fast to adopt the bill after President Biden declared his support last week. The Suspension of Normal Trade Relations with Russia and Belarus Act was approved 424 to 8 under a fast-track procedure that needs at least two-thirds of legislators to endorse the measure. The bill is now sent to the Senate. That chamber has a corresponding measure with bipartisan support, and Majority Leader Chuck Schumer (D., N.Y.) has stated that he will strive to move it fast.

Maersk divesting its holdings in major Russian port operator. In the wake of Moscow’s invasion of Ukraine, Maersk announced Friday that it intends to sell its minority position in a holding firm that has shares in five Russian container terminals, including two of the largest in St. Petersburg’s port. The decision comes as the value of Global Ports Investments (GPI), which trades on the London Stock Exchange, has fallen precipitously since the invasion. Maersk wants to sell its 30.75% stake in GPI, which runs ports in Russia and Finland, according to a statement.

China-Europe rail in jeopardy as shippers skip Russian route. The China-Europe rail network is facing major disruption, with a massive decline in volume projected on the northern corridor — a conduit for more than 90% of commerce — that cannot be absorbed by capacity-constrained routes to the south that bypass Russia and Belarus. In 2021, a total of 1.46 million TEU were transported on the China-Europe rail, an increase of about 30% year on year as shippers driven out of the extremely crowded ocean shipping trades switched to the railroads. The center corridor handled roughly 4% of that total last year, but forwarders are already reporting increased congestion.

Divisions emerge, EU authorizes new Russia sanctions package. According to diplomats, the European Union has approved a fourth set of sanctions against Russia for its invasion of Ukraine, including a broad ban on investment in Russia’s energy sector, a ban on selling high-value luxury goods to the country, and new targeted sanctions against Russian business executives and oligarchs, including Roman Abramovich. The EU will also prohibit the import of steel from Russia, which will result in a loss of approximately €3.3 billion in export revenue, or approximately $3.6 billion, as well as a prohibition on EU credit-rating agencies rating Russia and Russian companies and providing rating services to Russian clients.

India to purchase Russian oil at discount amid war. While the U.S. and its Western allies seek to cut Russian oil imports, India is moving in the opposite direction. According to two Indian government sources, the nation has just agreed to purchase 3 million barrels of crude oil from Russia for delivery in May, and is working to secure further supplies in the coming weeks. The administration is attempting to mitigate the impact of rising oil costs by acquiring extra supply at a discount from Russia. According to one of the officials, the Russian oil is being sold at roughly 20% below global benchmark rates, with the supplier bearing insurance and transportation costs.

Ukraine President pushes global businesses to leave Russia in speech to Congress. Ukrainian President Volodymyr Zelensky is taking aim at international companies that continue to operate in Russia, putting increasing pressure on CEOs grappling with how to respond to Moscow’s invasion of Ukraine. In a speech to Congress on Wednesday, Mr. Zelensky urged legislators to urge companies from their home states to quit doing business in Russia. He also demanded that the U.S. prohibit the importation of all Russian goods.