China lockdowns not causing shipping chaos, ocean liner CEOs say

The shutdowns in China have been predicted to wreak havoc on container shipping. Six weeks into the Shanghai lockdowns, that still hasn’t happened. Two line CEOs – Soren Skou of Maersk and Matt Cox of Matson – explained why.

“The Harbor [of Shanghai] is open and operational,” Skou said during Wednesday’s quarterly earnings call. Trucking and warehouse disruptions are “slowing things down somewhat and we are seeing an impact on our volumes outside of China, but probably less than we expected.

“The purchase orders that our customers have issued in China do not disappear because we have [a lockdown] so obviously they will come later. But at the moment we don’t see a huge build-up in volumes due to the shutdown in Shanghai. »

Cox reported during his company’s earnings call on Tuesday that “the impact on Matson’s operations in China has been minimal. Our terminals receive cargo and handle empties and our ships leave Ningbo and Shanghai on time.

Capacity reallocated after shutdowns in China

Some Matson customers have changed departures from Shanghai to neighboring Ningbo and a few have canceled reservations, “but those places were filled quite quickly,” Cox said. “The bottom line is that Matson’s ships are sailing full from China.” Not only throughout the first quarter of 2022, but also until April.

Cox said some other shipping lines are skipping calls to Shanghai and diverting to other ports. “Some carriers and customers have moved to Ningbo. But a number of carriers have canceled departures from Shanghai [or Ningbo] and went to Busan [Korea] or other ports of Asian origin and reallocated this capacity to other markets.

The overall shipping impact of the Shanghai lockdown, according to Cox, is “a reduction in capacity [out of Shanghai] … largely fulfilled by other loading ports for other carriers.

Project data44 confirms no disruption to export operations in the Port of Shanghai. It shows that the average waiting time for export containers at the port of Shanghai to destinations like the United States has actually decreased during the lockdown. In the last week of April, it was down 43% year on year at 2.02 days. The wait time for import containers increased during the lockdown (due to a lack of inland trucking) but this indicator fell by 15% in the last week of April compared to to the previous week, at 10.75 days.

Blue line = number of days to wait for import containers. Purple line = export containers. Dotted red line = confinement period. Map: FreightWaves SONAR (To learn more about FreightWaves SONAR, Click here.)

Port Congestion Outlook

When China’s lockdowns ease, Cox expects delayed cargo to enter the trans-Pacific network and cause the queue of ships waiting for berths in Los Angeles/Long Beach to increase again.

“Some of our customers have recently indicated that they have a significant production backlog due to recent supply chain challenges, on the order of several months of freight. This will take time to settle, especially since it will coincide with the traditional high summer season.

According to the Marine Exchange of Southern California, 34 container ships were waiting at the Los Angeles/Long Beach docks on Tuesday. That’s just slightly less than the number of ships waiting this year, but still more than double the size of the queue at this time last year.

Chart: US shipper based on Marine Exchange of Southern California data

Cox believes the Chinese blockades have “caused a temporary reduction in the number of waiting ships. When this all comes back online, I think we’ll see the backlog grow, as well as the traditional peak season as we start to get into it.

Skou pointed out that globally, congestion is already very high – even before the start of the peak season in the United States and the Chinese freight delayed by the lockout arrives in the water.

“The question most on the minds of global logistics players is, of course, when we will see a normalization of the extraordinary market situation that we have been experiencing since the start of the pandemic,” Skou said.

“Unfortunately, this quarter [Q1 2022] hasn’t gotten us much closer to normalization. In fact, the spread of omicron in China [makes the] very difficult time to predict.

“Between 10% and 12% of global shipping capacity is linked to port congestion. We believe this is actually an increase from the start of the year. What we have seen happen is that port congestion has spread from the west coast of the United States to the east coast and now also in parts of China.

Earnings overview:

Both Matson and Maersk reported earnings ahead of the release of their full quarterly results.

Matson (NYSE: MATX) is a niche operator that offers domestic services to Alaska, Hawaii and Guam in addition to China-US services. Its shipping revenue increased 68% year-on-year to $943.9 million in the first quarter of 2022. Net income was $339.2 million, up 289% from 87.2 million in the first quarter of 2021.

Maersk Group, which owns the world’s second-largest shipping carrier, reported net profit of $6.8 billion for the first quarter of 2022, compared with $2.7 billion in the first quarter of 2021. The group’s profit before interest, taxes, depreciation and amortization (EBITDA) reached a record high of $9.2 billion.

And the current quarter looks even better. Maersk’s chief financial officer Patrick Jany said on the conference call that second-quarter 2022 operating performance was “as strong” as first-quarter 2022. But in the first quarter, Maersk suffered a 718 million hit. dollars due to the closure of its operations in Russia after the invasion of Ukraine. “It won’t happen again, so Q2 should be mathematically better than Q1,” Jany said.

On April 26, Maersk raised its full-year EBITDA forecast to $30 billion from $24 billion previously. Deutsche Bank analyst Andy Chu puts the number much higher. On Wednesday, it raised its EBITDA outlook for Maersk to $37 billion from $32 billion previously.

Click for more articles by Greg Miller

Sign up today for the Future of Supply Chain #FOSC22

Leading supply chain voices will travel to Rogers, Arkansas, May 9-10.

*Limited time pricing available.