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The global logistics logam is shifting from Suez to Shenzhen



HONG KONG – As Western economies roar back to life, a new wave of Covid-19 clusters in Asia – where vaccination campaigns remain in their early stages – create new bottlenecks in the global supply chain that threaten to push prices up and weigh recovery from pandemic.

An outbreak in one of the world’s busiest ports in southern China has led to global delays in shipping, while infections at key points in the semiconductor supply chain in Taiwan and Malaysia exacerbate a global chip shortage that has hampered production in the automotive and technology industries.

The new headache exacerbates inflation problems after China and the United States this week recorded their largest annual jumps in factory and consumer prices for more than a decade, respectively. If such problems persist ̵

1; and worsen – they could offset global growth.

For much of last year, China, Taiwan, and many other parts of Asia held the pandemic better than the United States and Europe, limiting some of the economic damage. But as vaccination rates have risen in the West, governments have begun to reverse restrictions and economies are swinging up.

Immunization efforts in Asia have meanwhile lagged behind, and authorities have largely kept stricter border controls in place to keep the virus out. Still, Covid-19 has spread. Thailand has been hit hard over the past two months by its worst wave of new cases ever, while Vietnam – an increasingly popular production center that largely avoided previous waves of infection – has also suffered.

Low vaccination rates throughout Asia could keep the rules on social distance and travel bans, which would disrupt manufacturing and suppress consumer spending.

“This comes at a really fragile time, when we’re just starting to see global trade recovery pick up,” said Nick Marro, Hong Kong-based Global Trade Analyst at the Economist Intelligence Unit.

A doctor in protective suit administers a Covid-19 test in Zhuhai, China, on June 8.


Photo:

China daily / Reuters

In Yantian, a container port in the southern Chinese city of Shenzhen, an outbreak among port workers has halted traffic, putting greater pressure on an international shipping industry that has struggled with a persistent shortage of empty containers and a week-long blockade of the Suez Canal in the past. on the year.

Some ships have had to wait up to two weeks to take cargo on the Yantian with approx. 160,000 containers waiting to be loaded, according to brokers. The cost of shipping a 40-foot container to the west coast of the United States has risen to $ 6,341 according to the Freightos Baltic Index – a 63% increase since the beginning of the year and more than three times the price a year earlier.

Yantian handled nearly 50% more cargo last year than the Port of Los Angeles – the busiest U.S. container port – and in the first quarter of this year, container volume saw a 45% increase from the year before. The port’s activity, which handles more than 13 million containers a year, is now at 30% of normal levels and the delays could last for several weeks, says Hua Joo Tan, a Singapore-based analyst at Liner Research Services.

Lars Mikael Jensen, network manager for AP Møller-Mærsk A / S, the Danish maritime giant, said that the backlog in Shenzhen will be felt globally and will affect goods sold at Walmart Inc.

and Home Depot Inc.,

companies that have established logistics bases around the port.

“It is a huge and very active port, and when you are delayed there, it has ripple effects on supply chains all over the world,” said Mr. Jensen, whose company redirects 40 container ships from Yantian to other ports, including Hong Kong. The blockade of the Suez Canal lasted a week and it took 10 days to remove the backlog, he said.

“There is no end in sight here. The Chinese will keep everything closed until they are sure that Covid will not spread, ”he said.

Meanwhile, Taiwan, which accounts for a fifth of the world’s chip production capacity – including a significant proportion of the chips used in the automotive industry – is suffering its worst Covid-19 outbreak since the pandemic began.

And King Yuan Electronics Co.

, one of the island’s largest chip testing and packaging companies, has more than 200 employees tested positive for the virus this month, while another 2,000 employees have been quarantined – reducing the company’s revenue this month by about a third.

Meanwhile, other semiconductor companies nearby have been battling their own workplace outbreaks, according to Taiwanese Miaoli County officials, where the recent clusters are concentrated.

Taiwan Semiconductor Manufacturing Co.

, which alone accounts for 92% of the production of the world’s most sophisticated chips, says it has not yet been affected, but the eruption is taking place next to its headquarters in Hsinchu, Taiwan.

Given the already crippling global shortage in the chip industry, the outbreaks in Taiwan’s technology sector will “obviously … exacerbate the shortage,” said Brady Wang, a semiconductor analyst at Counterpoint Research.

Malaysia, home to a number of foreign-owned factories involved in chipmaking and the production of capacitors, resistors and other key modules used in consumer electronics and automobiles, has also seen its manufacturing activity engulfed by a wave of Covid-19 cases.

Infineon Technologies AG

, a German semiconductor manufacturer with two factories in Malaysia, was told by health authorities to close one of its plants earlier this month, delaying some chip deliveries. The company’s other global factories are running at high capacity and are unable to pick up the slack, according to Gregor Rodehueser, a spokesman for the company.

After employees tested positive for Covid-19 at another factory in Malaysia run by Taiyo Yuden Co.

, a Japanese manufacturer of electronics and semiconductor parts, the plant extended a holiday closure by 10 extra days until Monday as a precaution.

The 1,300-foot container ship that blocked the Suez Canal for six days has been liberated and has begun moving north, the Suez Canal Authority said. WSJ’s Rory Jones explains the rescue effort and what happens next. Photo: DPA / Zuma Press (Video from 29-03-21)

All in all, the Malaysia Semiconductor Industry Association says the shutdown will reduce production by between 15% and 40%.

“It will disrupt the supply chain somewhere, somehow,” said Wong Siew Hai, the group’s president.

Semiconductor shortages are lowered for small businesses that feel the impact of slower deliveries and higher prices.

“I have three cars with electrical problems and the parts are being ordered back without a release date,” said Hector Martinez, who runs Rye Auto Care in Rye, NY. “Everything that has to do with electronic parts comes late. Tires are missing and parts prices have risen by 20% over the last two months. ”

A cargo ship is seen near Yantian port in Shenzhen, China, in May 2020.


Photo:

Martin Pollard / Reuters

In addition to hitting companies in the technology and car supply chains, the disruption could add headwinds to China’s export sector – one of the strongest pillars of its economic recovery – and increase global inflationary pressures.

China has played a key role in suppressing global inflationary pressures, as manufacturers have largely absorbed growth in input costs so far, said Shen Jianguang, chief economist at online retail market JD.com Inc.’s

financing unit in Beijing. But recent marine disturbances are likely to spread to higher consumer prices around the world.

The eruption in Shenzhen’s home province of Guangdong, China’s most populous, responsible for approx. a tenth of the country’s economic output, has pushed some producers there to raise prices and even temporarily halt production to avoid further erosion to their profit margins.

“It’s pretty scary,” said Zhu Guojin, a consultant at logistics firm Jizhi Supply Chain Service Yiwu Co. “This is the first time we have seen a decline in port capacity on such a scale in China.”

While shipping prices to the United States have risen, Mr. Zhu most of his customers, including Amazon.com Inc.

suppliers and some US importers pay up.

“Last year, many customers delayed the shipment in the hope that costs could come down. But that is no longer the case, “said Mr. Zhu. “Most people no longer seem interested in prices.”

Some officials and analysts have so far played down on the impact.

On Thursday, Chinese Trade Ministry spokesman Gao Feng said Guangdong province’s Covid-19 re-emergence had not yet led to a significant impact on foreign trade. Among the province’s approx. 2,000 exporters said more than half said new orders were still higher than they were a year earlier.

Sir. Wang, the semiconductor analyst, is optimistic that the impact of Taiwan’s outbreaks on chip production will prove to be minimal, provided things do not get significantly worse.

It is not clear when the strains will decline. Because many governments in Asia are aiming to eradicate their Covid-19 cases, even if it means short-term economic pain, the situation of supply chains may get worse before it gets better.

“Right now, the most important issue is to limit the outbreak in these specific companies and prevent it from spreading further,” said Patrick Chen, head of Taiwan’s research for CLSA, a brokerage firm. “If they can not, we will face a far more serious disturbance.”

Some companies could also benefit from the fast-paced supply chains. Shares of several Chinese shipping companies, including Chinese state-owned Cosco Shipping Holdings Co.

, one of the world’s largest cargo ship operators, saw its Hong Kong-listed shares rise by as much as 14% Thursday to their highest levels in more than a decade in hopes of a sustained rise in container ship rates.

Write to Stella Yifan Xie at stella.xie@wsj.com, Costas Paris at costas.paris@wsj.com and Stephanie Yang at stephanie.yang@wsj.com

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