Update (Friday): The locked-down megacity of Shanghai eased pandemic restrictions this week and will see public transportation networks reopen as soon as Sunday. After two months, the city of 26 million people appears to have contained the spread of COVID-19 via China's zero COVID policy.
Restarting Beijing could be problematic for the rest of the world. We laid this out Thursday. The city's lockdown and reduced port capacity created a massive backlog of products that need to be loaded on container ships and hauled westward.
Maersk and Goldman Sachs (in two separate reports) outlined the immediate restart of Beijing would create renewed global supply chain congestion.
We told readers to monitor trans-Pacific container freight rates closely as a proxy for China's restart.
New data from Fearnley Securities indicates container rates have finally rebounded after slumping for much of this year. This is an early indication that economic activity in Shanghai could be increasing as pandemic restrictions ease.
Fearnley's Peder Nicolai Jarlsby expects a surge in freight volumes as container rates increase. He added this would be a bullish development for shares of A.P. Møller – Maersk A/S, the world's largest container shipping company by capacity, and shipper Hapag-Lloyd.
Focusing on 40ft container freight rates on the Shanghai-Los Angeles shipping lane, prices have found higher lows and appear to be turning up after a 30% decline since peaking last September.
Goldman warned earlier this week: "We could see a resurgence of ship bottlenecks if sudden restarts in China lead to renewed sailings all at once."
And if that's the case, container rates for major shipping lines in the trans-Pacific region could increase more as shipping volumes surge. This would mean renewed supply chain congestion could hit US shores in late summer, perfect timing ahead of the US midterm elections.
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A.P. Møller – Maersk A/S, the world's largest container shipping company by capacity, and Goldman Sachs' supply chain congestion analysis (in separate reports) indicate if China restarts, renewed supply chain congestion will be seen worldwide.
Maersk told its Asia-Pacific customers that China's zero COVID policy to lockdown Shanghai, the world's largest port and China's financial hub, for nearly two months, will "have an effect all over the world in the coming months."
For seven weeks, a massive parking lot of vessels has been building outside Shanghai ports as operations came to a crawl because of the lockdown of 26 million residents.
Since the lockdown began in late March, Goldman Sachs' weekly congestion index has slid as US West and East Coast port congestion plunged. This is because the trans-Pacific volume of vessels from China to the US declined as port capacity was restricted due to lockdowns.
Maersk told clients, "statically speaking, the virus is under control," and this could soon indicate Chinese port capacity may expand and sailings could increase to the US, which will only complicate things down the line for US West Coast ports as a backlog of goods will flood US ports.
Goldman also agrees and warns: "We could see a resurgence of ship bottlenecks if sudden restarts in China lead to renewed sailings all at once."
A forward leading indicator of Chinese port activity and if a resurgence of bottlenecks is ahead for the US are global container freight rates.
Weekly changes of the World Container Index show that when China went into lockdown, container rates for 40-foot boxes dropped.
By shipping lane, if there's a tick-up in freight rates between China and the US West Coast, then it would be safe to assume China is restarting.
If China restarts and container rates begin to rise, the countdown will be about 1-2 months until a massive backlog hits US ports, renewing port congestion right before midterm elections.