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Pandemic policies, economic downturns and supply chain disruption see the global freight shipping industry charting an unknown course

By Du Wei Updated Jul.1

Cargo carriers berth at Yangshan deep water port, Shanghai, October 23, 2021

Li Lu, a 37-year-old chief mate on a merchant cargo vessel, is still hesitating about whether he will return to sea on a regular crew change. The crew must rotate regularly as required by international maritime rules for health and safety. Li was supposed to replace other crew in March. He cannot afford to stay home for too long, as his job as a seafarer is the main source of income for his family. But like his colleagues, now he is finding the job he has done for 13 years “too risky to make a living from.”  

In September 2020, Li departed from Zhoushan, Zhejiang Province as part of a crew of 22 seafarers, to the US and then Brazil, to transport grain to China. The journey kept him at sea for 11 months, the maximum under the 2006 Maritime Labor Convention which comes under the International Labor Organization. After he finally arrived back in China, he had to spend 28 days in central quarantine, first in Shanghai, his port of entry, and then Zhengzhou, his hometown. When he actually got home, he had to do another seven days of self-monitoring.  

The twists and turns he experienced in this long, arduous journey make him worry about when and how he can return home once he sets off again. Because of Covid-19 restrictions around the world, hundreds of thousands of seafarers are stuck at sea, unable to get replacements and go home. Meanwhile, others cannot go to sea to earn their living.  

What’s worse, the health risks and restrictions are deterring seafarers. More and more are in the same position as Li, unwilling to go. Some are considering quitting altogether, even though it pays well.  

“No one wants to replace them. And once these seafarers get rotated out and get home, they’ll hesitate like me,” Li said.  

The crew-change crisis mirrors challenges faced by the global shipping industry since the pandemic started, including the demand-supply imbalance, strained transport capacity and uncertainties in sailing schedules. The pandemic is reshaping the shipping industry and supply chains around the world, including China, with its heavy reliance on sea transport for foreign trade. 

Crew-change Crisis 
Li works for a ship management company based in Shanghai as chief mate for a dry bulk carrier. His duties include cargo safety and supervising loading and unloading.  

In late March 2021, when his vessel departed Brazil, it was already time for Li to have been rotated off, as they usually stay at sea for six months and then rest for three. But according to Covid regulations in Brazil, seafarers could not go ashore. They also could not change crew in their next ports of call, including at Singapore and ports in China, Australia and Indonesia. They finally got replacements in Mauritius in August 2021. After quarantining for 21 days there, they got plane tickets at 10 times the usual price to Shanghai in early September. He finally returned home late that month.  

Before the pandemic, the ship would dock every month on average and the crew would have shore leave. Eleven months at sea was a huge psychological challenge for the sailors.  

In April 2020, Chinese authorities required more targeted pandemic measures for crew on international freight lines. In December 2021, the State Council demanded that all places facilitate reasonable crew-changes.  

However, many places set obstacles or additional conditions to hinder crew-changes to avoid new Covid cases. Lu Yongzhi, general manager of leading Hong Kong shipping line Tai Chong Cheang’s branch in Shanghai, told NewsChina that authorities at a Chinese port demanded that an 80,000- ton vessel apply seven days in advance for a crew change, so docking was delayed. Then the crew was required to do nucleic acid tests and unloading was not allowed before the test results came out. According to Lu, most Chinese ports have similar policies. Some require the ship to berth for at least 48 hours before replacing seafarers, even though cargo handling usually takes less than 24 hours, adding another day’s delay. Other ports refuse to be the first point of entry, citing limits such as exceeding its maximum permissible draft. Fearing a single detected case could close an entire port, many refuse crew rotations too.  

On April 12, the Ministry of Transport (MoT) reiterated that ports should not suspend crew changes for international vessels due to reasons such as lack of quarantine hotels or having departed from high-risk countries, unless the ports have already announced they would not allow crew rotations. 

Crew Losses 
The long quarantines for seafarers result in transport capacity loss and reduced turnover rates, which means sailors are in demand. Even though shipping is vital to China – 90 percent of its foreign trade goes by sea – the country lacks sailors. A report on Chinese seafarers released by China’s MoT in 2021 shows that by the end of 2020, there were 269,995 certified sailors for international routes, a year-on-year growth of 4.1 percent. But in 2020, the 250 crew agencies licensed to recruit seafarers for overseas vessels assigned only 122,304 seafarers, a 21.3 percent decrease from the previous year. With crew rotation difficulties mounting, more Chinese seafarers are unwilling to go.  

To cope, many Chinese lines are recruiting from other countries like the Philippines, the world’s biggest source of seafarers. Lu Yongzhi told NewsChina that his company has 10 dry bulk carriers, with seven previously crewed by Chinese and the rest with Filipino seamen. Starting from 2021, Chinese sailors crewed only half the ships.  

Crew replacement has become an international headache that still plagues global shipping. As the United Nations Conference on Trade and Development (UNC TAD) pointed out in its annual Review of Maritime Transport 2021, “responding to Covid-19, governments closed many borders and imposed lockdowns and prohibited people from disembarking, thus temporarily suspending crew changes.”  

Since September 2020, international organizations including the International Maritime Organization and the UN have recommended actions to facilitate crew changes and designate seafarers as essential workers. But there is still no global consensus on unified measures. 
In January 2021, the shipping industry released the Neptune Declaration on Seafarer Wellbeing and Crew Change and put forward a Neptune Declaration Crew Change indicator that includes data from 90,000 seafarers with 10 leading ship managers. But the indicator launched in May 2021 showed a worsening situation for seafarers between June and July 2021 – more had been on board for over 11 months and more stayed on vessels beyond the expiry of their contract. 

Paying the Price 
When Li Lu and his fellow sailors changed shift in Mauritius, they spent a combined 1 million yuan (US$150,000) between them to cover all kinds of expenses, including accommodation and plane tickets home. These expenses are passed to the shipowner, who further raises freight rates. Because of the shortage of hands, wages for merchant seafarers have soared. Before the pandemic, Li Lu earned US$7,000 a month. Now he gets US$10,000.  

The global shipping market has fluctuated sharply since the pandemic. In the first three months following the pandemic’s outbreak in January 2020, volume and freight rates dropped. Then major freight companies unanimously suspended part of their transport capacity. Rates rebounded in May 2020, and shipping demand has skyrocketed beyond supply ever since. Also, with loading and unloading less efficient, turnaround time of containers down, berth times up and port congestion severe, shipping prices continue to rise.  

Xue Yingchun, captain of a shipping company based in Shanghai and vice president of Shanghai Hongqiao District’s chamber of shipping, told NewsChina that the highest freight rates for bulk carriers in 2021 were six times that in 2019. The surge in container freight rates is even greater. The rent for bulk carriers of 10,000 tons and above in 2021 was four times that in 2019. “For a bulk vessel of 20,000 tons, a day’s delay in port means US$20,000-30,000 more in charter costs. Berth fees also cost several thousands of yuan per day,” Xue said.  

Zhang Yongfeng analyzed that the high container freight rates reflect the demand-supply imbalance since mid 2021, as consumption in the US and Europe has been robust. Now ports and wharfs in Europe and the US have resumed work, which has alleviated overseas port congestion and container shortages. In the long term, there is room to adjust for market expectations. Zhang said he was optimistic that the market will return to normal.  

There are signs of stabilization. On May 20, the Shanghai Shipping Exchange published the latest China Containerized Freight Index, an indicator of the container freight rate, which stood at 3135.78, a big drop from the highest index of 3587.91 entering 2022. Between January and May 20, the Shanghai Containerized Freight Index dropped from 5109.60 to 4162.69, signaling that freight rates are going down.  

Zhao Yifei, assistant dean of Sino-US Global Logistics Institute at Shanghai Jiao Tong University, told NewsChina that in the latter half of 2021, when the Port of Los Angeles was at its most clogged, vessels queued for over 30 days. Now they only need to wait 10 days. Before the pandemic, vessels took around 20 days to travel from a Chinese port to North America. In January 2022 it took 40 days. As of April, it fell to 30 days. “The global carrier schedule performance index has restored to 30-40 percent of normal, a lot better than the worst time in October 2021 when it was only around 10 percent of the pre-pandemic level,” Zhao said.  

Domestic ports are also returning to normal. After a ship tracking app screenshot went viral online allegedly showing serious congestion of vessels waiting to berth at Shanghai in early April, Shanghai Port said that its efficiency has improved. Since March 28, the average wait time was less than 24 hours and on average less than 10 ships were queued.  

On May 11, the MoT said that in April container throughout in Shanghai port restored to 82.4 percent of that in the same period of 2021 and continues to improve. The port, the world's largest in terms of container throughput, usually handles 2,000 ships and 40 million shipping containers annually. Average time in port has decreased to 2.12 days, Chinese media reported. 

Uncertain Prospects 
But challenges remain for the Port of Shanghai. About 75 percent of container cargo transported from Shanghai comes from other regions. But due to differences in Covid prevention policies across the country, including highway closures in cities and counties, many trucks were blocked from entering Shanghai, while truck drivers coming from Shanghai had to quarantine. Many ended up stuck on highways and were not allowed to exit their cabs. Zhao Yifei said both the port and shipping companies have pivoted to other solutions. Some freight shipping companies are docking at other mainland ports such as Ningbo, Zhoushan or Qingdao to improve loading efficiency. The situation in other ports is better, but difficulties in road logistics and container transport remain.The MoT said some containers are transported to and from Shanghai port by inland waterways now.  

As Covid restrictions continue, mandatory quarantines for all links of the transportation process reduce loading efficiency. Some countries have special requirements for vessels from high-risk regions, requiring them to anchor for two weeks. Some Chinese ports require ships with Covid-19 cases to wait at anchorage until all the crew’s nucleic acid tests are negative. The entire process could take nearly a month, meaning huge losses for shipowners and freight lines.  

Zhang Yongfeng said unexpected factors might further aggravate the market, such as regional restrictions on delivery, changes in prevention policies, new Covid variants and the US mid-term elections later this year. But Zhao Yifei believes that although the pandemic will continue, the worst time for shipping has passed.  

The UNCTAD review pointed out the global maritime industry is facing increasing uncertainties amid a slowing global economy. Over the past two decades, compound annual growth in maritime trade has been 2.9 percent, but over the period 2022-2026, UNCTAD expects that rate to slow to 2.4 percent.  

In response to shortages, major shipping companies are mass-producing large or ultra-large container carriers. The China Association of the National Shipbuilding Industry revealed that major Chinese shipbuilders are already taking orders beyond 2024. Some market observers believe that as new container vessels are delivered in 2022, there will be oversupply in the market, which will gradually reduce freight rates, while others said the market’s recovery depends on when the pandemic ends.  

Regardless, Zhao Yifei said the industry is unlikely to return to pre-pandemic rates, as “the cost for ships, containers and seafarers all have changed by the pandemic and have reached a new balance” in the past two years.  

As rising freight rates drive up imports and consumer prices, the UNCTAD review suggested that global import price levels will increase on average by 11 percent. The pandemic will change the overall structure and mode of supply chains, which will also affect the global shipping market. For example, enterprises may combine local sourcing and global sourcing. Hybrid operating models will appear, including just-in-time (material moved just before its use in the manufacturing process) and just-in-case supply chain models (where companies keep large inventories to minimize stocks being sold out). All this will “change distances and routes” of shipping services, the UNCTAD report said.  

For Li Lu and his fellow seafarers, the voyage ahead will be no less hard to navigate than it has been since 2020.

Seafarers clean the deck of their cargo ship en route from Tianjin to Quanzhou, southeastern Fujian Province, June 18, 2018