Shipping hurt by weak demand for Chinese goods

Weaker international demand for Chinese goods has led to a rise in shipping cancellations at the country’s biggest ports, putting a damper on the expected economic boost from its emergence from zero-Covid policies.

Industry participants in China point to an increase in “blank sailings”, where carriers miss ports because there is not enough cargo to pick up or they fear delays.

While cancellations are typical within the industry and usually rise during lunar new year, the supply chains data provider Drewry said the rate is “exceptionally elevated” this year, because of a drop in demand in the West. China’s exports have fallen for three consecutive months, weakening a core pillar of its struggling economic model.

The cancellation rate for ships travelling east from Asia across the Pacific or to Europe will reach 31 per cent over the coming weeks, compared with 23 per cent over the same period last year and 16 per cent in 2021, Drewry said.

As well as weak demand there is less to be shipped after hundreds of millions of estimated Covid-19 cases over the past month added to pressure on the country’s supply chains, leading to staff shortages and factory closures.

“What happened to the shipping market as the virus spread everywhere in China . . . is worse than my worst projection,” said Mark Young, chief executive of Shanghai-based Asia Maritime Pacific, which owns a fleet consisting of dozens of ships.

“The market has many empty ships but fewer cargo ready to be shipped,” he added, comparing the situation with the beginning of the Covid-19 pandemic in early 2020.

China’s vast infrastructure linking factories and ports has grappled for three years with a strict zero-Covid regime that required frequent quarantines for personnel and “closed-loop” operations. The policy led to delays and cancellations, but exports largely boomed over that period as demand for goods soared.

Simon Sundboell, founder and chief executive of data provider eeSea, said the nature of the disruption had now changed, from a scenario driven by delays within a “hot market” to one of weaker demand.

“The industry is coming slowly back to normal and you do need to cancel more because of demand lowering,” he said. “Last year, that was down to all these excessive delays.”

One Shanghai-based manufacturer who asked to remain anonymous said the carriers “just aren’t coming into the ports because there’s no volume”. He added that a fall in demand “is resulting in shipping lines reducing the number of vessels in circulation”.

Jan Dieleman, head of Cargill Ocean Transportation, said the coronavirus outbreak was “absolutely” contributing to an increase in blank sailings. The commodity shipping group has not cancelled deliveries but has reduced coal shipments to China in recent months, in part because of seasonal changes in demand.

Young said Asia Maritime Pacific had been forced to cancel a sailing to a port on the Changjiang river to collect steel-related cargo because the factory could not produce it in time. He expects to send another ship to collect it in a month.

Blank sailings have increased globally over the past year on a weakening economic backdrop. In China, the first nationwide outbreak of coronavirus coincided with the build-up to lunar new year. Maersk, the Danish container shipping company, said demand can be “expected to be volatile given the holiday closure in China combined with both the Covid situation and the ongoing inventory correction in US and Europe”.

Anne-Sophie Zerlang Karlsen, head of ocean operations for Asia-Pacific at Maersk, nonetheless suggested that the wider relaxation of Covid-19 measures was “a very positive development that has the potential of lifting the Chinese economy significantly”.

Cargill’s Dieleman said the shipping industry was now relying on a rebound in economic activity. “People think that the first [Covid-19] wave will go,” he said. “There is going to be stimulus from the government. So people start being bullish.”