Concern is growing that the spread of COVID cases and city lockdowns in China will have massive downstream effects for global supply chains that could dwarf previous disruptions since the start of the pandemic.<\/p>\n
Last May, the huge Yantian container terminal at the Port of Shenzhen throttled down to 30% of normal productivity for a month to stamp out a handful of positive cases there. Hundreds of thousands of shipments that couldn\u2019t enter the port accumulated in factories and warehouses, and many vessels skipped the port to avoid waiting seven days or more at anchor. It took weeks after the port reopened to clear the cargo backlog. The effects cascaded to the U.S. and Europe, resulting in port traffic jams, transit times triple the norm and missed retail deliveries for the holidays.<\/p>\n
The difference this time is that an entire metropolis \u2014 and highly interconnected global trade center \u2014 is essentially shut down. Not since the initial 2020 COVID-19 outbreak in Wuhan have lockdowns been this extensive in China.<\/p>\n
\u201cIt\u2019s probably worse than Wuhan,\u201d said Jon Monroe, an ocean shipping and supply chain expert who runs a consulting firm. \u201cYou\u2019re going to have a lot of pent-up orders. It\u2019s going to be an overwhelming movement of goods\u201d that will drown shipping lines and ports once the lockdowns are lifted.<\/p>\n
Freight is piling up<\/strong><\/p>\n Twenty-five million people in Shanghai have been sequestered for 18 days. Chinese authorities this week slightly eased the restrictions, dividing the city into three categories based on previous screenings and risk levels. People can wander outside their apartment buildings but are encouraged to stay home in neighborhoods with no positive COVID-19 cases in the past two weeks. Those in high-risk areas must still shelter at home.<\/p>\n Spanish financial services firm BBVA predicts Chinese authorities will stick to the \u201czero-COVID\u201d strategy and lockdowns until at least June. Other China observers say it could take even longer to meet China\u2019s infection standard.<\/p>\n Shanghai is one of the largest manufacturing centers in China, with heavy concentrations of automotive and electronics suppliers. It is home to the largest container port in the world and a major airport that serves inbound and outbound air cargo. Exports produced in Shanghai account for 7.2% of China\u2019s total volume and about 20% of China\u2019s export container throughput moves through the port there, according to the BBVA report.<\/p>\n Most warehouses and plants are closed, nine out of 10 trucks are sidelined, the port and airport have limited function, shipping units are stranded in the wrong places, and freight is piling up.<\/p>\n More and more, the logistics impacts are rippling beyond the contagion epicenter.<\/p>\n Ships delayed at port of Hong Kong and Yantian<\/strong><\/p>\n Shipping schedules in South China are being impacted by irregular feeder vessels and large barge services, creating delays for transoceanic vessels at the ports of Hong Kong and Yantian, according to a situational update from supply chain data platform project44. Both ports have been coping with disruptive COVID restrictions for months.<\/p>\n Nearby manufacturing hubs in Vietnam and Cambodia are already suffering from a shortage of Chinese components for their manufacturing industries, project44 reported. And pharmaceutical companies in India, which source 70% of their active ingredients from China, are facing limited supplies.<\/p>\n Ocean shipping delays from the top three Chinese ports to Hamburg, Germany, and Amsterdam had already doubled to more than 12 days during the first quarter, before the Shanghai lockdown fully materialized, according to project44 data.<\/p>\n Ocean freight expert Lars Jensen, CEO of Vespucci Maritime, summed up the situation on his LinkedIn page this way: \u201cUntil this situation is resolved \u2014 which appears next to impossible when matching the omicron variant with zero-tolerance \u2014 we should expect drops in export demand, port omissions and more blank sailings in the near term future as well as Shanghai-bound cargo increasingly being discharged elsewhere.\u201d<\/p>\n COVID lockdowns spread<\/strong><\/p>\n Meanwhile, COVID infections are spreading beyond Shanghai, according to news reports and logistics companies. The southern manufacturing hub of Guangzhou, for example, has started mass COVID testing, introduced travel restrictions and shifted schools to online learning \u2014 steps that often portend a wider lockdown.<\/p>\n The city of Kunshan \u2014 an important production center for electronics near Shanghai \u2014 is closed down until April 19. Part of Taicang, another manufacturing area in Jiangsu province, is also locked down. A surge of new COVID cases is hitting the coastal cities of Dalian and Tianjin in the north, Ningbo in the east, and Xiamen and Dongguan in the south.<\/p>\n Ningbo officials ordered residents in two downtown districts to sequester at home, but so far the seaport is not affected. Nantong is on a partial lockdown until April 15. Port operations have been severely impacted, with logistics companies diverting shipments to Nanjing. Zhangiagang is also under partial lockdown until April 19, resulting in slower port operations and some factory closures.<\/p>\n Lockdowns ease U.S. supply chain strains before flood of cargo<\/strong><\/p>\n The slowdown in China exports should provide temporary relief to congestion-plagued U.S. ports on both coasts, as well as in Europe, but logistics experts say the breather is likely to be followed by a tsunami of deferred cargo once the lockdowns are lifted. The cargo volume will far exceed the handling capability of the ports, with containers jamming up terminals faster than they can be transferred to inland transport and pushing vessels into long queues at sea.<\/p>\n Delta Air LInes President Glen Hauenstein said on an earnings call Wednesday that once the Shanghai restrictions are lifted, the airline expects a boom in cargo bookings that more than offsets the current export lag.<\/p>\n A mass quarantine that lasts until June could mean the drawdown of backlogged air and ocean freight pushes into the peak shipping season, as more volume enters the system.<\/p>\n \u201cEven with air and ocean ports open, the length of the shutdown could make this iteration the most significant logistics disruption since the start of the pandemic,\u201d Freightos said in its update.<\/p>","protected":false},"excerpt":{"rendered":" Concern is growing that the spread of COVID cases and city lockdowns in China will have massive downstream effects for global supply chains that could dwarf previous disruptions since the start of the pandemic. Last May, the huge Yantian container … Continue reading