Shippers brace for capacity squeeze as Chinese manufacturing resumes

2/27/2020

Export freight volumes are beginning to return to China as the country’s production picks up slowly, with shippers likely to face an increasing squeeze in air and ocean outbound capacity – accompanied by higher rates – in the weeks to come, according to an update yesterday from global freight forwarding and logistics group Agility.

Agility’s latest China coronavirus operational update noted that pressure on capacity was currently affecting inbound air freight and China domestic trucking in particular. And on the production side, it highlighted that “many large exporters, including original equipment manufacturers (OEMs), are not immediately resuming full production either due to manpower shortage, in response to or as a precaution to ensure quarantine measures for returning workers”. 

Based on preliminary assessments, it said an estimated 30% of major suppliers remain closed, with major OEMs indicating “the delay to reach full production could last well into March”.

Commenting on the situation for air and ocean freight in greater detail, the update notes that airport and port operations are currently relatively smooth. But Agility expects “possible challenges” at Shanghai Pudong (PVG) Airport as outbound cargo volume picks up, while low manpower is impacting service levels and operating efficiency at certain locations.

“A prime example is PVG, where stringent rules for workers returning from holidays have been implemented,” it noted. Stringent restrictions for carriage into and out of Shanghai Province could further impact cargo flow, particularly affecting PVG airport, it added.

The update goes on to note that the number of flight cancellations and blank sailings is on the rise. There have been almost 7,500 outbound flight cancellations, it estimated, but freighter operations are gradually being resumed.

Ocean carriers have begun implementing extra blank sailings, reducing transpacific eastbound (TPEB) capacity by an estimated 25% and China-EU capacity by as much as 60%.

“Today, both international air and ocean capacity are available, reflecting the slowdown in production over the last few weeks. However, as we move forward, pressure on outbound capacity will likely increase and drive market rates up,” Agility noted.

“Agility encourages customers to communicate demand forecasts so that we can better support them through this period of volatility.”

The company underlined in its update that outbound air freight capacity from China was largely available currently, although more than 5,000 tonnes of daily capacity has been taken out of the market.

But it said the situation varies from area to area in China. In the north, mainly Beijing and Tianjin, “freighter capacity is being resumed as (the) market picks up slightly. In Central China (notably PVG), market rates are slightly reducing, while capacity management appears unstructured. Some freighter operations are being resumed.”

It continued: “The situations in North and Central China are expected to persist for another week or two, after which market rates likely will pick up significantly.”

Meanwhile, capacity in South China – mainly Hong Kong – “is being adjusted to meet demand and rates remain relatively stable. Rates out of Hong Kong are expected to increase significantly as production in Guangdong Province ramps up.”

The update also noted that the charter market was starting to gain momentum to clear customer backlogs and/or in preparation for the anticipated rush later in the month or early March.

Turning to road transport, the update said cross-border trucking had largely normalised, but there was currently a 3-4 day backlog on the border to Vietnam.

It said cross-border services between China and Hong Kong were unaffected by the mandatory quarantine imposed by Hong Kong since 8 February, with drivers permitted to cross the border and return without being quarantined.