February 4, 2020 / 9:38 AM / 6 months ago

New Zealand loggers, U.S. food exporters suffer from China's virus clampdown

BEIJING/WELLINGTON (Reuters) - The economic impact of China’s coronavirus lockdown is being felt across the globe, with exporters, miners and manufacturers of everything from coal and timber to meat and fruit facing delays and potential shipment cancellations.

As the most populous nation and factory floor for many of the world’s manufactured goods, China is normally the largest and most voracious consumer of a slew of global raw materials, fuels, and foods.

But the combination of an extended Lunar New Year holiday and the rapid spread of a coronavirus that has killed over 420 people and restricted the movement of millions more has jammed logistics channels into and across the country.

(GRAPHIC - Comparing coronaviruses: here)

Supply line backups are stretching all the way to New Zealand, the United States, and beyond. The effect is more pronounced for smaller items such as food and forestry products. Bulk items like iron ore, fuel, and coal have mainly automatic offloading and transfer to storage that has not been affected.

Exports of goods from China have also been disrupted, leading to other supply chain problems. Hyundai Motor (005380.KS) has said it will suspend production in South Korea, its biggest manufacturing base, because of a lack of spare parts.

At Gisborne’s Eastland Port on New Zealand’s North Island, log exports to China – the port’s main source of revenue – have been halted until further notice, while forestry workers across New Zealand have been told to go home.

China is by far the largest market for New Zealand’s log exports.

“The industry is reeling a bit as you would expect,” said Prue Younger, chief executive for the Forest Industry Contractors Association.

New Zealand’s NZ$300 million ($195 million) in annual lobster sales to China have also been badly hit. Local prices of rock lobster have nearly halved as exporters seek to offload stock and fishermen have stopped fresh landings, traders said.

“For New Zealand exporters, the timing is unfortunate because this is a peak period for demand and good prices over the Chinese New Year,” New Zealand Rock Lobster Industry Council chief executive Mark Edwards told news portal Stuff.

LABOR SHORTAGE

Compounding the impact of port congestion are the several city-wide lockdowns that are aimed at stopping the virus’ spread and which are preventing people from getting to work. That is leading to reduced staffing for all the necessary functions at typical entry ports, such as customs officers and freight-handling and inspection workers.

Fewer people working at the ports is expected to create supply-chain delays and threaten to raise costs for U.S. agricultural exporters who do business in China, such as poultry processors Sanderson Farms Inc (SAFM.O) and Tyson Foods Inc (TSN.N).

There are an estimated 300 to 400 refrigerated poultry containers currently in transit to China from the United States, about 80% of which are chicken feet, or paws, said Jim Sumner, president of the USA Poultry & Egg Export Council.

A worker wearing a face mask walks past a cargo ship at a container terminal of Qingdao port in Shandong province, China as the country is hit by an outbreak of the new coronavirus, February 4, 2020. cnsphoto via REUTERS

This was part of a ramp-up for U.S. exporters after the signing of the U.S.-China Phase 1 deal. Beijing in November lifted a nearly five-year ban on shipments of U.S. poultry meat.

“Our first shipments of paws were just starting to arrive when all this happened,” Sumner said. “The volume at which they can clear product is a fraction of what they were previously able to do.”

Neither Tyson nor Sanderson could immediately be reached for comment Tuesday.

There are also reports of a shortage of pilots for tugboats, meaning large ships now take longer than normal to dock at certain ports.

Officials at several of the larger ports say they have been able to sustain normal operations but smaller port facilities are struggling.

“Our port and docks are running normally. But the real problem now is the downstream receiving ports, such as (around) Shanghai and Ningbo,” said a logistics manager at Yingkou port in the northeastern province of Liaoning, a major iron ore and coal hub.

“What we heard from their report is that they don’t have enough people to drive trucks and boats to transfer goods out of the ports by road and by river. So they are having congestion and want us to slow down our pace to send vessels to them.”

The manager of a state-backed logistics firm in Ningbo said that the waiting time has swelled to “at least four days” to unload river barges due to the staffing shortages.

(GRAPHIC - Vessel congestion off Ningbo, eastern China: here)

But an even bigger problem, he said, is the weak downstream demand due to the extensive lockdowns.

“Traders are supposed to get their goods and sell it to downstream users, but right now they can sell to nobody. So they just stock it at ports, making less and less space for further goods to come in.”

EXPORTER CAUTION

U.S. exporters of agricultural goods said some container shipments may be getting delayed due to uncertainty about the grace period for demurrage, or the fees owed to cargo buyers for delivery delays.

Roughly 20 large ports and two interior shipping firms across China have reduced or removed demurrage and detention fees for container, bulk and oil shipments through Feb. 9 to try to sustain the flow of goods to market.

Even so, exporters with weeks-long journey times to China remain concerned about the potential for lengthy delays once their goods arrive, especially for food that is liable to spoil.

FILE PHOTO: A worker wearing a face mask transports fertilisers for export at a port in Nantong, Jiangsu province, China January 31, 2020. China Daily via REUTERS/File Photo

“Carriers extended the grace period to February 9, but beyond that the shippers could face steep penalties,” said executive director Peter Friedmann at the Agriculture Transportation Coalition, a U.S.-based industry body.

He added that normal demurrage fees for refrigerated containers - used to ship fish, meat and fruit - could run to $350 per container per day, potentially leading to steep losses on low-margin shipments of perishable goods if offloading delays are extended.

Writing by Shivani Singh and Gavin Maguire; Additional reporting by Karl Plume and Tom Polansek in CHICAGO, Yuka Obayashi in TOKYO; Editing by Raju Gopalakrishnan and Rosalba O'Brien

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