Resources | Market Trends | April 29, 2022

Inflation Update: China’s COVID Lockdowns Are Expected to Cause Major Shipping Delays

High demand, limited access to goods could contribute to inflation.

Supply chain financing has a huge impact on the overall health of a company.

High demand, limited access to goods could contribute to inflation. 

This summer will probably bring another slowdown in the supply chain as Shanghai and other Chinese cities begin to emerge from COVID-related shutdowns this spring, experts say. 

The National Retail Federation (NRF) is warning that US ports may face increased congestion as Chinese factories resume normal production. Shanghai has just allowed a select number of facilities to reopen after authorities instituted a strict lockdown in late March. At one point, roughly 25% of China’s population was locked down

For a time, the shutdowns led to reduced imports at West Coast ports, giving workers an opportunity to work through a backlog of shipping containers, the NRF said. Unfortunately, many ports are still congested. The situation has worsened on the East Coast.  

As normal shipping starts again, the delays along the West Coast may quickly worsen and lead to longer waits throughout the supply chain. That includes not just retail goods, but also parts that US manufacturers need for their production lines.

Add it all together, and the situation has the potential to drive inflationary pressures generally and the cost of shipping specifically. 

The C2FO Outook 

According to C2FO’s proprietary data model, which harnesses hundreds of million invoices on its platform, the Consumer Price Index (CPI) is projected to have increased by 8.6% year-over-year (YOY) in April while the Producer Price Index (PPI) is estimated to have grown by 11.56%. 

How busy will ports become? 

Good news first: Despite a number of challenging conditions, world trade experienced a good month in April. According to the Kiel Trade Indicator, trade stabilized and showed progress compared to the first quarter of the year.

“However, a stabilization of world trade could only be a brief respite: The volumes of goods that are stuck on ships amount to a very high 12%,” said Vincent Stamer, who heads up the Kiel Trade Indicator. “The lockdown to fight the COVID-19 pandemic in Shanghai now seems to be causing a slump in exports. Thirty percent fewer container volumes than expected are currently leaving Shanghai, the world’s largest container port. In the coming weeks, this could lead to further delays and supply bottlenecks.”

Several US retailers say they are moving up their orders by a few months so they can be sure to have inventory in time for the fall and winter. 

Imports at US ports are expected to decline by at least 2% year-over-year (YOY) in April and May, but are forecast to increase by 5.2% in June, 5.6% in July and 3.3% in August, according to the Global Port Tracker, a report from the NRF and Hackett Associates.

If August’s forecast is accurate, more than 2.35 million twenty-foot equivalent units (TEU) – a TEU is a one 20-foot container or its equivalent — will be imported, setting a record for container imports in a single month, just as we head into the peak fall shipping season. 

On the other hand, it’s possible the situation might not be as bad as some fear. 

As FreightWaves reported, US businesses generally haven’t increased their ocean freight bookings since last year — something that, logically, many of them would have done if they were worried about receiving shipments from China. Higher inflation may finally be dampening consumer demand. 

And there have been some early signs of improvement at Chinese ports. 

At one point in mid-April, there were more than 500 container vessels waiting to dock at Chinese ports, according to Windward, the makers of a risk management platform for the maritime industry. 

Two weeks later, that number was down to 412. 

Uncertainty about timing 

If there will be a logjam in shipping, it’s not clear when it will hit. For starters, no one knows exactly when the Chinese government will lift its shutdowns. The most common estimate is around mid-May at the earliest, assuming COVID numbers improve. 

Nobody knows when things will return to normal operation.

What you can do 

When conditions are difficult to forecast, it’s important to optimize your working capital, so that you can quickly adapt to suddenly higher prices for inventory or shipping. Greater liquidity can also help pay for a move to new, physically closer suppliers or even the redesigning of products with material limitations in mind.

Encouraging early payment of invoices is one of the best and fastest ways for many businesses to generate working capital. Most companies have outstanding accounts receivable that could be accelerated by offering a discount. It can also be less expensive than borrowing money for working capital needs. 

C2FO’s platform was explicitly designed to solve this problem. On average, suppliers that use its early payment program get paid 31 days faster. Learn more here.

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