Crisis in China affects logistics in Brazil

Lockdown measures in China are beginning to affect ocean shipping in Brazil. Exporters already face higher freight rates and difficulty in shipping goods on the Brazil-Asia route – especially those reliant on refrigerated containers, such as the meat industry. As for imports, delays and trip suggest that there will be bottlenecks in the coming months.

Right now, the situation is more serious for exports due to congestion in Chinese ports, especially Shanghai, which concentrates the world’s largest container terminals. With no storage space or sockets available for containers, some shipping companies have halted orders for reefer cargo, or have diverted ships to other Chinese ports – which are also beginning to fill up, creating a cascade effect.

As a result, freight rates on the export route from Brazil to Asia, which were already high, have risen further since March. This month, the value reached $6,800 per 40-foot reefer container in the short-term market, compared with $3,000 to $4,000 before the pandemic. The price was up 58% year over year, a survey by the National Confederation of Industry (CNI) with data from consultancy Solve Shipping shows.

Freight rates of imports have not been affected yet, but prices, which had been falling, are expected to rise again in the coming months. In April, the value was $5,300 per 20-foot container, according to CNI. This is still a high level for the historical series, but well below the peaks recorded in recent months.

In the Brazilian market, the route coming from Asia was the most impacted by the logistical crisis caused by the pandemic. Prices, which were around $1,500 per container before the crisis, skyrocketed from the second half of 2020 onwards and reached record highs, above $10,000.

This rise was caused by the mismatch between supply and demand worldwide. On the one hand, consumption of goods soared from the end of 2020. On the other hand, the health crisis reduced the production capacity of industrial companies and generated logistical obstacles – with delays in the release of goods, reduction of teams due to contagion, lack of containers in the market and port congestion.

In recent months, the Brazilian market had seen a balance between supply and demand, which explains the recent reduction in the freight rates of imports on the Asia-Brazil route, said Matheus de Castro, an analyst at CNI. Now, however, the situation is expected to worsen again. “Lockdown measures in China will start to bring problems. The higher export freights are already a reflection of the difficulties, of stopover cancellations.”

Leandro Barreto, a partner at Solve Shipping, believes that the lower import freight rates seen at the beginning of the year are a one-off event, because it is a time of the year when demand is already low. Prices are expected to rise again from May on due to delays and cancelations.

In his view, the impacts of the crisis will be felt especially when the restrictions in China are lifted. “Bottlenecks are expected to emerge, and freight rates tend to rise once lockdown measures end, because there will be pent-up demand to meet. In addition, the peak season starts in June or July, when demand seasonally increases,” he said.

For Rafael Dantas, head of importer Asia Shipping, the biggest impact of the current crisis will not be so much on freight rates, but on the lack of imported goods due to logistics bottlenecks. “I do not believe that we will return to the level [of freight rates] of 2021. The scenario is different. Consumer spending has dropped in Brazil, the country is no longer under lockdown measures, demand has returned to normality. But we will certainly feel the lack of products.”

The analysts point out that, besides the restrictions in China, a number of factors have influenced prices. One is the war in Ukraine, Mr. Castro said. “This has not generated logistical bottlenecks, but has put pressure on fuel prices.” In addition, problems in Chinese ports are compounded by the congestion in U.S. ports – a situation that has been dragging on since last year, as a reflection of the logistical chaos generated by the pandemic, he said.

“Worldwide, the market is at the operational limit and any event delays normalization. The situation was expected to improve throughout 2023, but it may take longer,” he said.

According to the major shipping groups, it is still early to predict when normalization of the logistics chain in China will occur. “There are several factors to be considered, especially the duration of this outbreak of the omicron variant and the measures governments will take,” trade association Centronave said.

Source: Valor International

https://valorinternational.globo.com