China's port closures: an expert's view

- Due to the new COVID-19 outbreak in China, commercial ports are partially or completely closed. This is causing long queues, days-long delays in shipping and other negative effects on maritime trade. How can you comment on what is happening?

- What happens is what is called a “bottleneck”: as an example, one port has increased the processing time of one container and gradually, due to constantly arriving cargoes, a congestion is formed, and carriers begin to redirect volumes to other ports/terminals, and there is also overflow of loaded containers. As a result, not only seaports are overloaded, but also land terminals. For example, in Yiwu (China's rail terminal), the volume of traffic has increased by 200-300%.

- What consequences of this crisis can be predicted?

I believe that this is an artificially created crisis. Its purpose is to increase transportation prices and control the turnover. Now due to delays the turnover of containers and ships is very low. Cargoes waiting for shipment are accumulating. Then there is a re-buying of bookings: those who want their cargo to go faster are ready to pay a higher price for a place on the ship. Consequently, the cost of transportation increases and so the cost of the cargo transported will increase. And in the end, the end buyer of the goods, i.e. ordinary people, pays for everything.

Pharmaceutical goods, foodstuffs and other types of perishable cargo because of the delay in shipment, spoil, go to write-off. Because of this, companies-cargo owners incur serious costs, which are almost not compensated in any way. The result is bankruptcy and job cuts.

Another consequence is penalties. If, for example, construction equipment or components are not delivered to the site on time, it means that the site is not completed on time. And this is followed by penalties for the contractor and further corresponding consequences.

- What did this situation show? And what conclusions should shippers draw for the future?

An important point that this crisis has revealed is the lack of legislative regulation of transportation prices. For example, 2 years ago transportation of a container cost $2000, and now it costs $8000. The cost of transportation has increased 3-4 times. The growth of prices is uncontrolled, and this is wrong. There should be a regulatory mechanism at the legislative, interstate level, which will regulate this cost. The cost of transportation has not changed much in two years. This means that artificial conditions have been created to increase the cost of transportation.

In addition, the infrastructure serving sea and rail transportation is becoming obsolete and is not being updated at the same rate as cargo flows increase. This includes ports, terminals and transshipment points.

On the shippers' side, there are faulty operating models, too. Most transportation companies use only established routes, without alternative routes. I believe that it is necessary to diversify cargo shipment schemes, to think through options in advance in case of unforeseen situations. The more experience you have, the better you are insured against force majeure.

Thus, the current situation is indicative; it is a consequence, not a cause. And we need to work with the cause: regulate transportation prices by law, make technical upgrades to the infrastructure. And transportation companies should distribute routes and always have a backup plan of action, and preferably several.

Let's hope that the crisis has not only revealed the existing problems, but will also become an impetus for positive changes in international and domestic freight transportation.