The initial assessment of the coronavirus effect on ocean shipping was: It will slash Chinese exports of containerized, factory-made goods and reduce China’s import demand for industrial and energy bulk commodities.
As it turns out, that appraisal missed a big part of the fallout picture.
The Chinese population still has the same demand for food, but a major logistical hurdle has emerged to the import of perishables — and the consequences are reverberating across global agricultural export markets, including in the U.S.
Perishables are imported in refrigerated containers or “reefers.” When they’re unloaded at the destination terminal, they must be connected to power via “reefer plugs” until they’re picked up by trucks. Terminals only have so many reefer plugs, and given delays in inland truck transport due to coronavirus restrictions, reefer plugs are now full in several top Chinese ports.
Peter Friedmann, executive director of the Agriculture Transport Coalition (AgTC), told FreightWaves, “The challenge for our AgTC members who export refrigerated exports such as pork, beef and poultry, as well as dry cargo such as hay and lumber, is lack of capacity of the supply chain. The reefer plugs are all taken at Chinese terminals, [and] domestic China restrictions on movement of persons and vehicles are severely limiting ability to move reefer and dry containers off the terminals to inland destinations.”
Container lines impose surcharges
Container lines are instituting special reefer surcharges for cargo to affected Chinese ports and are warning customers of diversions ahead. Ocean Network Express (ONE) and Maersk are adding $1,000 per container, with CMA CGM and APL charging $1,250 and others expected to follow suit.
“Most reefer plugs at the yards of all container terminals in Shanghai, Ningbo and Tianjin/Xingang are already occupied,” warned CMA CGM, noting that it is being “forced to divert reefer cargo to other ports.”
According to ONE, “Due to the slow inbound container pick-up activity caused by the outbreak of the Novel Coronavirus and the extension of the Lunar New Year holiday, some Chinese terminals … face a serious shortage of available reefer plugs.”
ONE cautioned that reefer containers may be discharged at alternate ports without prior notice and would only be shipped to their final destinations in China when reefer plugs become available. It is advising clients to preemptively change destinations of “time-sensitive cargoes such as fresh, chilled commodities.”
Maersk is allowing customers to change destinations for free and stated that it can offer no guarantee on when reefer cargoes scheduled to be unloaded in Shanghai and Xingang will ultimately arrive, because the situation “is outside of our control” and depends on when “the ports are able to receive reefers again.”
Friedmann pointed out that it’s not just a shortage of reefer plugs. “The slowing or curtailment of China production of U.S.-bound consumer goods and manufacturing components has logically led ocean carriers to cancel sailings, for lack of cargo. As the increasing number of ships are not arriving at U.S. ports, there is a growing shortage of ship space and containers to haul our ag exports to China.”
He expressed consternation with the carriers’ imposition of surcharges in response to the situation.
“It is difficult to understand the objective of imposing reefer surcharges on reefer cargo that isn’t moving,” he told FreightWaves. “No one is being injured more than U.S. agriculture exporters by the inability to get their product to China markets. Piling surcharges on the exporters won’t create more reefer plugs at the terminals. Blanked [canceled] sailings mean cargo doesn’t move. So why announce surcharges on cargo that can’t find a ship to carry it?”
Bad timing
The reefer-plug issue for containerized food exports to China is coming just as demand had been poised to pick up.
Approximately 40% of China’s pigs have been culled as a result of the African Swine Flu. This has been highly negative for demand for bulk carriers, which transport soybeans to China for use as pig feed, but highly positive for demand for refrigerated meat exports to China, particularly in light of the recent easing in trade tensions between the U.S. and China.
During a webinar on the coronavirus presented by Capital Link on Friday, Giovanni Ravano, co-CEO of shipping brokerage IFCHOR, noted that “because of the swine flu, China has become a lot more dependent on meat imports to replace the swine population that has been culled, and with the trade deal, the U.S. [meat exporters are in position] to be the big winners and big beneficiaries from that.”
“How long will this supply chain disruption last? A pressing question we are seeking to answer for our AgTC members,” Friedmann said. “However, the answer is not really in the hands of the supply chain. We are consulting with physicians — the answer depends on how long until the spread of the virus is contained and when medical protocols can be developed. It then depends on how long until companies with production in China believe it is safe to bring the workforce back into the factories and dormitories, and how long the Chinese government believes it is necessary to restrict movement of people and vehicles within China.
“Not only the Chinese government but responsible Western companies have to balance global health priorities with economic recovery,” Friedmann said. More FreightWaves/American Shipper articles by Greg Miller