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China shipping logjam chokes Christmas in US and Europe

Pandemic leaves containers in wrong places and ports under strain

Germany's Hamburg port. An upsurge in demand during the year-end holiday season in Europe and the U.S. has coincided with severe disruption to global logistics chains.   © Reuters

HAMBURG, Germany/PALO ALTO, U.S. -- Severe bottlenecks in trade between China and the rest of the world are frustrating retailers and shoppers in Europe and the U.S. during the year's biggest shopping season.

During Germany's first COVID-19-lockdown in March, Oliver Hellmold, CEO of Notebooksbilliger, one of Europe's largest online electronics retailers, started ordering twice as many gadgets from China as usual for this year's pre-Christmas sales, anticipating a pandemic-related shift toward people working from home.

But by October Hellmold had begun struggling to maintain inventory. The shortages have been especially dramatic for monitors, PCs and notebooks: Hellmold says that since August demand from schools and the public sector has been up by about 40% year-on-year as learning and services shift online.

"We have lately on a daily basis been turning down orders of several hundred units for notebooks, PCs and monitors by schools and local governments," Hellmold told Nikkei Asia.

Private customers wanting to buy for Christmas, he says, will have to "settle for alternative electronics models that are still available." He foresees no big improvement until at least March.

Indeed, Sony's PlayStation 5 and Microsoft's Xbox Series X are virtually sold out across Germany. Retailers of China-made bicycles, toys, sporting goods and fashion have flagged the same problem.

Stock levels in the U.S. are historically low, too. ShipMatrix, a Pennsylvania-based shipment technology provider, expects 3 billion packages to be shipped during the Thanksgiving-to-Christmas holiday season in the U.S. -- up 34% from 2019.

The problem is not simply an increase in demand. Instead, the upsurge has coincided with severe disruption to global logistics chains, with containers in short supply and airfreight struggling to keep up.

Philip Damas, head of supply chain advisers at U.K.-based maritime consultancy Drewry, said, "It's the first time ever we are seeing such a complete nightmare, with retailers underestimating peak season demand and ports like Rotterdam being highly congested due to the pandemic reducing numbers of truckers and port workers."

Data by Sea-Intelligence, a global supply chain analysis company, shows that global ocean carrier reliability -- defined as how likely carriers are to meet their estimated sailing schedule transit times -- is at an all-time low.

In October 2020, carrier reliability was just 52.4%, a reduction of 26.7 percentage points year-on-year. For comparison, reliability peaked at 83.5% in June 2019.

Sanne Manders, COO at Flexport, a logistics company headquartered in San Francisco, observes two problems that are leading to dwindling U.S. stocks. "One is that you get a lot of backlog of freight that still needs to be cleared away," he said. "Second is low inventory levels because people basically empty all the warehouses by buying."

According to Drewry, Asia-Europe container shipping traffic in November was down to 84% of January's levels, despite exports from China to the EU growing 8.6% year-on-year in November. The discrepancy pushed up costs for East-West sea shipping and airfreight to 174% and 172.1% of the levels in January.

The Shanghai Containerized Freight Index (SCFI) on Dec. 11 reached its highest level since its launch in October 2009, with average spot rates between Shanghai and Los Angeles standing at an all-time record level of $3,871 per forty foot equivalent unit (FEU), a standard measure based on shipping containers. Current spot rates between Asia and North Europe are approaching the $2,500/FEU level, up 19.6% since early September, according to shipping data provider Alphaliner.

Lothar Thoma, managing director air & sea at Gebrueder Weiss, an Austria-based logistics company that has 19 branches in China, explained that the mess started in February, when China closed its ports during the COVID-19 lockdowns, thoroughly upsetting global circulation of shipping containers.

After the conditions in China's industrial and logistics sectors normalized in the second quarter of the year and Chinese exports rebounded, COVID-19 lockdowns in Europe and the U.S. then took their toll on the European and American ports' logistics, causing the time a container spends on land to double -- in Germany's case from one week to two.

"Exacerbating this, shipowners saw that prices grew faster on the China-U.S. routes than the China-Europe routes, so they withdrew capacity from the latter to make more money on the former, which makes even more sense when considering that the China-U.S. route is about 10 days shorter," Thoma said.

"Meanwhile, air cargo capacity has been down, too, due to the pandemic-related discontinuation of many passenger flights, which in normal times carry about 70% of overall air cargo capacity. And China-Europe rail cargo is running into bottlenecks at the border between Belarus and Poland, where containers have to be loaded from one train to another, owing to Russian track gauge meeting Continental track gauge there," he added.

Mattias Magnor, chief operating officer for road and rail of Germany-based Hellmann Worldwide Logistics, which serves the Europe-China trains, confirms that demand for the "new Silk Road" trains keeps rising owing to capacity shortages on sea.

According to him, the boom started in the second quarter of the year, when large quantities of personal protective equipment were transported from China to Europe.

"We take it that the current levels will be kept until at least the Chinese New Year holiday in mid-February, when the Chinese factories will be closing," Magnor said.

Nils Seebach, a German e-commerce expert and founder of digital consultancy Etribes, believes both European retailers and Chinese manufacturers have much to blame for the spoiled pre-Christmas bonanza.

According to him, the main mistake was the underestimation of the growth of online retail, which has shot up to 30% of total retail in Germany, compared to a pre-pandemic 15%.

"They had based their calculations on the assumption of mild graduated growth of the online share, so many of the Chinese goods ordered for Christmas went to the wrong channel: brick-and-mortar retail," Seebach said. "It is now not possible to simply get those goods quickly into online retail, as they would have to be packaged individually."

"Our advice for Chinese manufacturers is to facilitate an escape into air cargo by hiking sales prices, which consumers will largely be willing to accept, given demand outstripping supply. And for the online retailers, the marching order certainly is to greatly increase warehouse capacity along the autobahns," he added.

In the U.S., Satish Jindel, president of ShipMatrix, a Pennsylvania-based shipment technology provider, said it is up to retailers -- not consumers or carriers -- to get business out of the mess.

"They could help with the situation by giving offers earlier in the season and alerting the consumers that if you order after the 15th, you're gonna either not get it on time or you're gonna have to pay for express shipping," Jindel said.

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