As China continues its zero tolerance policy for COVID, Shanghai remains largely shuttered for a third, consecutive week.  While the severity of the lockdown has eased, and certain cohorts of the population have been granted limited ability to move about the city, air cargo operations remain severely constrained at PVG.  Ramp handlers, truckers, and key employees have seen limited access to airport and cargo facilities. As a result, most major airlines and air cargo carriers have canceled flights in and out of PVG.

With few logical geographic alternatives to PVG, cargo backlogs continue to mount. When combined with new production volumes as the city itself reopens, we estimate that backlogs could take weeks to clear, driving significant capacity tightness on PVG-based lanes, and thus materially increasing prices.

We’ve noted since the start of the pandemic that episodic demand fluctuations would have outsized impacts on pricing, given a reduced baseline of supply with which to absorb shocks to the market.  This case is no different, in our view. Earlier this month, we mentioned that reduced capacity on Asia-Europe lanes had not experienced the anticipated price increases due to temporarily lower demand as a result of broad Chinese lockdowns. PVG-based lanes, in particular, saw fairly stable rates. And while the next couple weeks may show a softening of pricing due to shuttered operations - or even no data at all given the extent of flight cancelations, we do expect lower capacity in Europe, paired with significant backlogged demand to produce material volatility as restrictions ease. 2022 continues to be a wild ride, in our view, and shippers are well advised to prepare for a broad range of outcomes throughout the year.

 

About Bruce Chan, Director & Senior Analyst, Global Logistics & Future Mobility Equity Research, Stifel

Bruce Chan joined Stifel in 2010 and is based out of the Miami office.

Bruce Chan can be reached at [email protected]. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. For more information and current disclosures for the companies discussed herein, please go to the research page at www.stifel.com.

©2021 by J. Bruce Chan.