Fourth Quarter Product Delays Already on The Horizon

Like taking a hammer to an already fragile supply chain, recent COVID-19 spikes in Chinese ports may already be threatening your clients’ promotional holiday plans. You likely have already felt the pain of product delays or complete lack of availability due to the pandemic. But now, congestion at container shipping ports in southern China is making things worse as authorities step up disinfection measures due to a flare-up in COVID-19 cases. The shipping backlog right now is the largest since 2019.

Since the end of May, more than 150 coronavirus cases have been reported in Guangdong province, a key manufacturing and exporting hub in southern China. That has triggered local governments to step up prevention and control efforts and have slowed port processing capacity. Ports in Guangdong, including Yantian, Shekou, Chiwan and Nansha have issued notices in the last two weeks suspending vessels from entering ports without advance reservations. Bookings for export-bound containers will only be accepted within three to seven days prior to the arrival of vessels. Major shipping companies have warned clients of vessel delays, changes to port call schedules, and the possibility of skipping some ports altogether.

Yantian port was originally supposed to be back running at full capacity in just a few days after the outbreak was announced, and now it’s supposed to be open by the end of the month. Just as it took several weeks for shipping schedules and supply chains to recover from the vessel blocking the Suez Canal in March, it may take months for the cargo backlog in southern China to clear while the fallout ripples to ports worldwide.

A.P. Moller-Maersk A/S, the world’s No. 1 container carrier, released a statement saying, in part, “The trend is worrying, and unceasing congestion is becoming a global problem.” The global shipping industry is already hamstrung by the pandemic hangover that adds inflation pressures and delivery delays. Now there’s an even bigger obstacle.

The situation in South China is another “in a string of disasters we’ve seen plague the global supply chain,” according to Nerijus Poskus, vice president of ocean strategy and carrier development for Flexport Inc., which makes software that helps companies manage their supply chains. He estimated the congestion in Yantian will take six to eight weeks to clear.

So, what does all this mean to you? To your sales and marketing efforts, the new timetable is a problem because it extends disruptions to the late-summer period of peak demand from the U.S. and Europe. Both the retail market and your suppliers/importers would normally be building inventory in warehouses ahead of the year-end holiday shopping and recognition sales rush.

Usually cheap and nearly invisible to both distributors and consumers, ocean freight is now more expensive than ever. It has become double trouble for the world economy, acting as both a drag on commerce and a potential accelerant for inflation. Just last week, U.S. Federal Reserve policy makers raised inflation forecasts in part because of the shipping bottlenecks that have formed, and as supply fails to keep pace with demand. That’s where it could even get into your personal pocketbook.

Even without the Suez blockage or port backlogs, the global transportation system would probably still be struggling with maxed-out capacity. Exports from China and other Asian nations are at record highs, as U.S. and European economies reopen and other markets such as India buy medical goods to help with their ongoing outbreaks.

“There are still a number of problem spots that will pose challenges to global trade and logistics activities in the second half of 2021,” says Nick Marro, lead analyst for global trade at the Economist Intelligence Unit in Hong Kong. “The biggest risk will be recurring Covid-19 outbreaks, which we can probably see as inevitable owing to the new variants, but this will also include mismatched supply and demand for container space and existing logistical bottlenecks in major Western ports.”

You may have already been planning ahead for the fourth quarter with the anticipation of a constrained supply chain. It might not be a bad idea to check to see if that plan still holds up, or it’s time to make a Plan B that relies less on imported product.