Ukraine War, China Lockdowns Hit European Supply Chains

The lockdowns in China and the war in Ukraine have caused a container shortage in Europe. Together with the shortage of containers, the port throughput has also decreased.

In the Q1 2022 compared with the same quarter last year, Antwerp and Rotterdam Ports handled lower volume of containers. Due to lockdowns, the containers meant for Europe have stuck at the ports of China, pointing to a bigger chaos in the coming weeks or months.  If the lockdowns continue, the throughput volumes will be further impacted in the coming months for these ports in Europe.

Another phenomenon is the decline in container prices in Europe. The average price of 20ft DC and 40ft HC (cargo worthy) containers have declined at the ports of Antwerp, Rotterdam, and Hamburg.

The average prices for 40ft high cube (cargo worthy) containers peaked in July 2021 (at around $4,400) and have been declining since then at these ports. The prices further declined sharply soon after Russia’s invasion of Ukraine (From $3,350 on 23 February to $2,760 on 3 May 2022).

The businesses in Europe will surely be impacted by the container shortage in major European ports. Industries affected the most are looking for ways to reinvent supply chains for business continuity.

Russia’s invasion of Ukraine has also had a dire consequence for European supply chains, but the most immediate impacts of the war so far have been rising energy prices and high inflation.

Because of these two outcomes, demand and supply across industries and regions will face further imbalance. As living costs continue to rise, demand for goods can shrink. Consequently, the changing demand-supply and sourcing patterns will worsen the container imbalance globally.

The Covid lockdowns in China have caused more uncertainty for the supply chain. They have slowed global supply chain significantly and forecasts of container availability and prices are bleak in the short term. Revival of the supply chain remains far-fetched in the short run.

As companies started to see the risks of linear supply chain where they are highly dependent on certain areas, regions or countries; they could start to diversify their sourcing strategy into a broader set of countries and regions. Branching out the trade routes will help distribute the risks and at the same time source the same component from multiple regions. And that will split up the supply chain demands.

Before the pandemic, the supply chain was all about efficient prices and in time delivery to make more profits. Now, companies have had to reimagine their supply chains. They are aware that risks are minimized by diversification.

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