Assessing China's logistics challenges after the virus lockdown

By Davide Ghilotti, Carrie Shi
Published: Tuesday, 10 March 2020

Delays to exports of minerals from China are inevitable as a result of the nation’s battle to contain the spread of novel coronavirus. Davide Ghilotti and Carrie Shi made a mid-February assessment of the impacts.

Chinese mineral producers trying to return to work amid the coronavirus disruptions are being hampered by the continuing shortage of land freight options and restrictions on border crossings.

Almost all land transport movements in China ground to a halt in the weeks following the first outbreak of novel coronavirus. A shortage of lorry drivers and rail freight cars made the transport of cargo within the country and to and from ports almost impossible.
What developed over the few days up to Friday February 14 was a logistics scenario that remained patchy in many areas, while a few provinces were slowly returning to a degree of normal operations.

Coast versus inland
The first distinction to make is that there seems to be a remarkable difference in the ability of factories, and to some degree of the transport sector, to operate between coastal areas and China’s interior. Some provinces on the coast, such as Liaoning in the north, have gradually restarted material movements, with local companies allowed to resume operations. Most magnesia producers in Liaoning reported to Fastmarkets that they have resumed all or part of their production, although some were still closed.

Similarly, in Shandong province, a hub for graphite production, operations in the city of Qingdao gradually restarted after a couple of weeks of closure. The proximity of Shandong’s graphite producers to local ports seems to be a main indicator of their ability to resume operations before others that are based further away.

Critically different is the situation in the country’s interior. Many of China’s inland provinces, including Shanxi, Henan, Hubei, Sichuan, Inner Mongolia and Ganzhou, continue to see significant disruptions to land transport.

At least two sources speaking to Fastmarkets said that authorities imposed an extended period of closures on lorry companies and couriers operating in the provinces of Shanxi and Henan (potentially in nearby areas as well) that would last until the second week of March. What this means is that very little cargo can be moved on roads in these areas for almost another month.

"The price of transport today, even by train, is up to 1,560 yuan [$223] per tonne to Tianjin," one seller said. "But road transport is impossible because no trucks are available and [anyway] they do not have permission to drive to Tianjin. Maybe next week it will change; we just don’t know."

Provincial borders shut
Another critical point is that transport between provinces is very limited because authorities want to be sure that they can track the origins of vehicles and contain the movements of people and goods. Consequently, provincial border checks have become much stricter.

"Logistics is very patchy all across China," one local producer of bauxite and alumina said. "Crossing provincial borders is downright impossible now. So, if you are anywhere inland, you can’t move material to the ports on the coast."

"We don’t expect to be able to ship anything out of our plant until the first or second week of March – there are no couriers available," a second producer, with operations in Shanxi, added. "What this means is that no ships are going to be loaded until March 18 at the earliest."

Rail connections were reported to be working although only on limited routes. The availability of rail cars was also few and far between. "Moving material by train is possible, although limited," the producer said. He added that the lack of lorries to move material to and from rail terminals compounds the problem. "Even if I could get a rail car, I cannot find a truck to take the cargo to the train terminal," he said. "So there you have it."

The first producer offered another example: "Yesterday, a truck wanted to come [to the plant] but could not. It had to get permission to come in, from the police, and this took more than 10 hours – just for one truck."

Late operations and shipments
Operations in many parts of China remain closed at the time of writing. The movement of people continues to be restrained, so workers who left industrial cities to visit their relatives for the Chinese new year celebrations are still, in many cases, unable to return to their places of work.

Those workers who have made it back are not immediately being allowed to return to work. They must spend as long as two weeks with their temperature being checked on a daily basis, to monitor for fever symptoms, before being allowed to resume work. This means that a lack of staff adds to companies’ inability to run.

With logistics operations down, feedstock cannot be delivered to factories, nor finished products sent out for delivery to customers, blocking the supply chain at both ends.

Considering that most land logistics are expected to remain under constraint until March, local sources have estimated that delays in sending shipments to destination markets may extend for more than two months in some cases.

"If you reach port in the second half of March, add more than 40 days for the vessel to reach a European port, one week on either end for loading/unloading and clearing, and a few more days to deliver to your customer’s plant," one distributor said. "In short, nothing is going to arrive from China into Europe before May – probably the end of May."

One refractories producer in Southern Europe said that he has been given even later estimated times of arrival from his suppliers. "Most of the inquiries I have put out," he said, "now estimate arrival in June or July."