COVID-19 puts international trade to a halt following the closure of the Ningbo-Zhoushan port in China and causing a global microchip shortage. There are other unanticipated issues to account for, such as the Suez Canal blockage.
Disruptions in international trade
COVID-19 has been a disruptor in international trade, which is relied upon for livelihoods due to the unanimous and global need for food and medicines. From closing major Chinese ports that account for billions of tonnes of goods to affecting major retailers’ supply chains, the pandemic and other unforeseen challenges such as the Ever Given blockage, have raised the question: how do we become more proactive when faced with major challenges in international trade?
Ningbo-Zhoushan port closure
The several weeks of closure at the Ningbo-Zhoushan port was the latest in a string of disruptions to global supply chains since the beginning of the pandemic. COVID-19 struck a worker in the Meishan terminal, causing the swift closure of the port that handled nearly 1.2 billion tonnes of goods in 2020.
The Meishan terminal closure left a fifth of the entire container volume at the Ningbo-Zhoushan port being held up, having to be diverted to other Chinese ports, resulting in the worst congestion in Chinese ports for seven years.
The reopening of the port had been highly anticipated, so the news that procedures can partially resume as of the 18thth of August 2021 was welcomed. Upon reflection of the closure, emphasis has been put on preventing the spread of the COVID-19 virus by following strict quarantine measures and resuming production by handling the congestion of aground trucks.
The global microchip shortage
In addition to putting a stop to major ports, COVID-19 has affected global supply chains in the form of a global microchip shortage. This has affected the production of billions of everyday items that use microchips to function such as televisions, games consoles and many common household appliances. Cases of COVID-19 soaring through factories led to the shutting down of microchip manufacturing, but production was not the only challenge being faced. Port closures, such as the Ningbo-Zhoushan closure, meant that chips were not reaching their intended destinations, causing a major backlog in completion.
The shortage has been predicted to cost major car retailers £80 billion, with companies such as Nissan and Ford stating that they will reduce production numbers of cars by 500,000 and a 1 million, respectively. Chinese firms which have been negatively affected by sanctions have been stockpiling microchips, leaving other companies in deficit. Apple CEO, Tim Cook, stated that the sales of the company’s phones and tablets would also take a hit as a result of the global chip shortage. Cook said in an interview with Reuters that although the microchips at a shortage are in use in older technologies, the iPhone production rates are still negatively impacted, resulting in a possible $4 billion loss.
Suez Canal blockage
International trade is also being put to a stop by unforeseen events, such as the Suez Canal blockage by the Ever Given ship in Egypt. The Suez Canal allowed for the efficient movement of goods, equating to roughly 12% of the world’s trade, between Asia, Europe and the Middle East. The blockage led to oil prices skyrocketing globally as well as delays in shipments globally.
The global freight crisis: lessons to be learned
Firms have been caught off guard by these disruptions and have had to reactively not proactively mitigate them, with some losing billions of dollars. Companies are thinking of ways to better overcome such disruption in the future, with importance being on firmer procedures following a COVID-19 outbreak such as mass testing and strict lockdowns. Other Chinese ports have also slowed vessel discharges and increased the freight prices of some commodities in order to ease the congestion.
As a result of the global microchip shortage, nations are realising they cannot be so reliant on China or the USA’s production of these critical chips. The European Commission have stated they want to increase their 10% contribution of global chip production to 20% thus preventing situations such as the global microchip shortage from affecting production rates so severely in the future. Companies such as Apple are already decreasing their iPhone production with it being predicted that it may be up to two years until demand can be fully met. Additionally, the prices of devices that require microchips will also significantly increase due to the shortage.
Even though the Suez Canal underwent a major expansion worth $8.5 billion in 2015 to meet capacity, The Ever Given blockage has opened the eyes of many, alluding to the realisation of what issues can arise because of such increased demand of goods globally. High demand has resulted in the increase of extremely large containers and container ships that we have seen do not always have the ability to reach their intended destination through narrow confines. Emphasis has been placed on the correct navigation of such large vessels and updating risk assessments.