China’s trade bottleneck could be worse than Suez Canal fiasco

There’s currently the mother of all freight traffic jams far exceeding March’s Suez Canal fiasco. And the impact on Australia could be huge.

When the giant container ship the MV Ever Given wedged itself across the Suez Canal back in March it quickly captured the world’s imagination.

In an instant, one of the globe’s most important maritime chokepoints was completely blocked, immediately raising some very challenging questions about the impact on global supply chains and their vulnerabilities.

But while the Ever Given may have dominated the media headlines and memes on social media, behind the scenes of global trade an even more impressive, inspirational event has been brewing.

RELATED: Fallout of Suez Canal madness

The MC Ever Given getting stuck in the Suez Canal captured the world’s imagination but also impacted trade. Picture: AFP

After tens of trillions of dollars in government stimulus around the globe, the demand for goods has never been so high. As a result, China’s factories have been working overtime to produce all the consumer goods households around the world have purchased with their stimulus funds.

In recent months the virulent Delta variant of Covid has been spreading throughout parts of southern China, impacting everything from dock workers to truck drivers.

Put the two together and you have a freight traffic jam of truly epic proportions.

Worse than the Suez Canal disaster

As of June 10, more container loads of freight were already being impacted than the entirety of the Suez Canal blockage. With the Delta strain continuing to impact logistics and shipping, this backlog may continue to grow despite the best efforts of port officials and shipping companies.

CEO of Vespucci Marine Lars Jensen said: “From port handling in Yantian (port in Southern China) alone, the sheer number of containers (not vessels) impacted now exceed the number of containers impacted in Suez.”

RELATED: Weird China lie that’s good for Australia

Ship congestion shown in southern China. Picture: Marinetraffic.com

In 2020 the port of Yantian handled the equivalent of 13.3 million 6m shipping containers, including a quarter of all Chinese trade with the US.

Despite its immense size, the Pearl River delta is currently packed with enormous container ships waiting for up to two weeks for berths to open up to dock.

Ship congestion in South China on June 16 2021. Picture: Marinetraffic.com.

According to shipping brokers, there are currently around 160,000 shipping containers waiting at Yantian alone to be loaded on the dozens of ships currently waiting at anchor.

Maersk, the world’s largest maritime freight company, advised on Thursday that 64 of its vessels had already skipped scheduled port calls at Yantian and Shekou.

As shipping and logistics companies look for alternative ports to bypass the Yantian traffic jam, such as Nansha and Hong Kong, there are risks the backlog could spread to refrigerated freight in these ports due to a limited number of slots for these types of containers.

Meanwhile, global shipping costs continue to rocket higher as a result of unprecedented demand for both transport and shipping containers.

Shipping costs from Shanghai to Rotterdam (one of the world’s busiest routes) have increased by over 500 per cent in the past year, to a record high of over $US10,000 ($A13,000) per 12m container.

Shipping containers sitting stacked at Shenzhen Yantian Port on February 27, 2021. Picture: Xie Feng/VCG via Getty Images

Prices will likely rise in Australia

Despite Australia’s relative proximity to China, we have not been immune to soaring global shipping costs. In the past year the cost of shipping a 12m container from Shanghai to Sydney has doubled to $4307 according to online freight shipping marketplace Freightos.

As a result of these rising costs, major retailers such as The Reject Shop have already signalled that they will raise prices.

The Reject Shop has already signalled it will have to raise prices due to increased shipping costs. Picture: Matthew Vasilescu/AAP

With no end in sight for the current rising supply costs for the nation’s retailers, The Reject Shop may be just the first of many to pass on those costs to Australian consumers.

Shipping experts have warned that the current delays would be felt around the world, rippling through the global supply chain.

Between the impact of potential goods shortages and rising inflationary pressures from the impact of the backlog of freight in China, Aussie consumers may face some challenges going forward.

Ongoing price rises may be far more long-lived than many analysts expect. We may see shortages of goods that are sourced from virus-impacted regions, by supply imbalances and virus outbreaks in China.

A rise in interest rates?

Depending on how long the inflationary pressures last and how strong they are, we may even see pressure build on the Reserve Bank to raise interest rates.

While the current freight traffic jam on the Pearl River is certainly heightening the inflationary pressures, it’s important to keep in mind that these issues were present before and they will likely be around long after.

Despite an extremely challenging time for Victorians and other Australians subjected to protracted lockdowns, Australia has generally escaped from the pandemic relatively well when contrasted with nations like the US and UK.

But as the issues with supply chains remain unresolved and the virus continues to wreak havoc in a heartland of global manufacturing, Australians may soon see the impact of rising prices on everything from our supermarket shops to our weekend pilgrimages to Bunnings.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator