China’s Shipping Delays Are Costing African Economies

China’s Shipping Delays Are Costing African Economies

China’s shipping delays to African countries in particular are the result of global trends. They need a global solution.

It is almost 18 months into the COVID-19 pandemic, and with increasing vaccination rates globally, on land, a return to “normal life” seems to be plausible in the coming months. However, on the sea, it is a different story. Global logistics is and looks like it will remain a snarled mess, with significant consequences in particular for African economies. While Africa accounts for only 3 percent of global trade, it is the region that depends most on external trade – 85 percent of its total trade is extra-regional, even though 30 percent of African countries are landlocked.

Ship and air freight delays and supply chain disruptions have been endemic since the onset of the COVID-19 pandemic. Factory closures, worker restrictions, and varying degrees of lockdown all contributed to reduced production and distribution of many goods, while logistics requirements for health and medical equipment rose. Overall, global shipping activity overall reduced by around 10 percent in 2020.

Logjams on trade lines originating in China, responsible for 16 percent of global trade, have been particularly challenged. In early 2020, China initially reduced external trade, then, as the country gained control over COVID-19, it experienced an export boom – for medical equipment as well as other goods. This export boom has continued, but with lockdowns elsewhere and thus fewer imports returning, containers to sustain outflows have proved difficult to source.

China also has very stringent COVID-19 management requirements for quarantine of sea workers versus standard practice elsewhere. For instance, on August 10, one case was identified in an asymptomatic worker at China’s eastern Ningbo Zhoushan port, prompting stringent quarantine measures and a suspension of all services at the facility by the next day. This has prolonged the already pressing backlog. Air freight outbound from China also experienced price hikes and fears of reduced capacity due to COVID-19 cases in Nanjing Airport staff, which only increases the pressure on sea routes.

Global environmental uncertainties are also of concern; the recent spate of extreme weather conditions in multiple countries linked to climate change disrupted schedules and prevented the smooth flow of goods through already burdened ports. There have also been unforeseen complications, such as the Suez canal blockage early in 2021.

To counter this, shipping firms have diverted scarce containers from less profitable trade lines to prioritize more profitable ones – for instance, those from China and Asia more broadly to Europe and the United States. Yet, the U.S. is itself experiencing port backlogs during its peak season. The slowed global container cycle is evinced in a reduced flow of Chinese exports to East African ports.

Overall, there has been a two- to fourfold increase in recorded year-over-year delays on global outbound maritime traffic between July 2020 and July 2021. Such longer wait times for shipping raise the cost of freight. The average cost of filling a container now stands at $3,500 per cost equivalent unit (CEU) – up from $1,800/CEU in early 2020 and $2,500/CEU in late 2020.

This cost is transferred to inflated prices for goods, affecting consumer’s purchasing power. In developing nations, such as Nigeria – whose citizens face a multi-dimensional poverty level of 47 percent and spend 56 percent of household income on food – such reduced household consumption alongside increased government expenditure on the health care system has increased the national fiscal deficit, prompted a deepening recession, and will no doubt lead to higher poverty levels if not curtailed.

Estimates suggest that the pandemic has already led to a contraction of Africa’s GDP by 2.1 percent in 2020, with levels of national impact varying with trade and tourism dependency in particular. While Africa’s GDP is projected to grow to 3.4 percent in 2021, this estimate is highly dependent on how current COVID-linked uncertainties are managed.

One means to remedy the shipping problem is to simply increase containers and vessels. Indeed, the three Chinese companies that produce 80 percent of global containers have upped production. However, since the top five European container companies own over 50 percent of the market share of container services, it is the aforementioned most profitable lines that have and will likely benefit first from increases in any new container capacity. The global deficit in containers is projected to extend into 2022.

Another initiative toward remedying the problem is the recent opening of the Shanghai port empty container transportation center at Yangshan Special Comprehensive Bonded Zone, which is intended to improve the regional container shortage by speeding processing of empty containers for re-use. The center is a collaborative effort by the Shanghai International Port Group Co. (SIPG) and is supported by several international shipping companies, including Maersk and CMA.

But again, there is no guarantee that this will affect African economies positively.

The fact is, Africa as a whole has a tiny stake in the logistics business – only three African ports are featured on the 2020 list of top 100 global container ports, and no African country holds more than 1 percent of ownership in global shipping services (the top spot goes to Nigeria at 0.3 percent). These conditions make it extremely difficult for the continent to hold sway in the sector. While China is Africa’s largest bilateral trade partner, and there are projections that this trade will continue to increase in both directions, the factors and rules that affect this trade are global – factors that vary according to European companies, U.S. consumers, the Chinese government’s rules.

COVID-19 is revealing that these global factors may well determine the prospects for growth in African countries’ more than African countries’ own economic strategies.

This imbalance likely indicates a need for intervention by the WTO and IMO, for instance, for the agreement of a new set of regulations aimed at – at least temporarily – boosting distribution to African and/or a broader set of lower and middle-income countries, supporting their economic recovery. This could build on the precedent established by UNICEF’s strategic agreement with major carriers to prioritize the booking of all COVID-19/COVAX-related supplies to mitigate the effects of the pandemic. This agreement could be widened to a broader set of goods and players, including the Chinese government with respect to COVID-19 management rules.

By Osaru Omosigho
Source: thediplomat.com

Post a comment

Your email address will not be published.

Chief Maloubier later were recalled: "After just about all, all of us agreed having a modest enjoy factory, Blancpain, to develop perfectwatches.is the task: a close look using a dark dial, significant, striking numerals and also apparent marks, plus an exterior spinning bezel.
X