"Worse than Wuhan": Major disruptions from China's lockdowns are expected to hit global supply chains this summer. -- China Boss update 4.29.22
Update
What shipping experts are saying
“Worse than Wuhan.” That’s what ocean shipping and supply-chain consultant Jon Monroe told Fortune magazine last week when asked how China’s “recent string of COVID-19 lockdowns” might impact global supply chains.
Fortune:
In 2020 alone, the U.S imported roughly $435 billion worth of goods from Chinese cities and sent another $125 billion to the country in exports, according to the Office of the United States Trade Representative.
That means, once lockdowns end, there’s going to be an “overwhelming movement of goods” that cripples supply chains, Jon Monroe, an ocean shipping and supply-chain expert who runs Jon Monroe Consulting, told FreightWaves on Friday.
“It’s probably worse than Wuhan. You’re going to have a lot of pent-up orders,” he said.
Delays are spilling over into air freight, too
Not only are backlogs ensnaring maritime shipping, but delays are affecting air freight passing through major airports across China, “causing a shortage of pallets for exports,” according to The Load Star, a shipping industry newspaper.
The Load Star:
Forwarders have singled out Zhengzhou Airport (CGO), in the central Henan province, as the hardest-hit, given the large amount of cargo diverted there from Shanghai.
Adding to the difficulties, Zhengzhou was itself began a two-week lockdown over the weekend that including the economic zone, with restrictions on travel and vehicle permits.
One Chinese forwarder told The Loadstar: “It’s not a real lockdown, but more a strict control of trucks and drivers in and out of the airport, whereby each day CGO issues passes to qualified trucks.”
The bigger problem, he said, was the increasing congestion at Zhengzhou, an the other major airfreight hubs in China, adding: “Unfortunately, there’s no improvement so far at PVG – most flights are suspended. The majority of export cargo is being diverted to other airports, however there is a massive reduction of air freight volumes, due to factories in the surrounding areas being under lockdown.”
At the same time, the forwarder added, the cargo diversions from PVG have caused “huge backlogs” at other major airports, including Zhengzhou, Beijing, Guangzhou and Shenzhen.
“Downstream impact” likely to worsen inflation
“Problems at ports mean rising costs for companies and increasing inflation for U.S. consumers,” Fortune reported.
Fortune:
“Companies are beginning to panic. The downstream impact is coming, and it’ll be heavy.” John Bree, the chief risk officer at Supply Wisdom, said. “The latest China lockdowns combined with the Russia-Ukraine war is too heavy a burden. The global chaos is going to further exacerbate disruption and take inflation to a new level.”
Rodrigo Zeidan, Professor of Finance & Economics at NYU Shanghai, agrees:
New Port of Los Angeles pile-ups
“A surge in imports into the United States from China is expected to take place in June or July, creating congestion once again for Southern California ports, which last experienced peak congestion in January,” Sara Hsu said in The Diplomat last week.
Hsu, The Diplomat:
Long Beach and the Port of Los Angeles import about 40 percent of all containerized goods into the U.S. The surge is likely to overwhelm West Coast ports, which have finally returned to normal throughput.
What is more, warehouses are currently at capacity and connecting railways are finding themselves backed up already due to lack of equipment. Labor negotiations between West Coast dockworkers and ocean carriers and port operators may further pinch Western ports.
Big picture: Expect China’s supply chain disruptions to continue until at least November
Analysts say there’s little hope for a quick end to China’s ongoing supply chain problems so long as authorities there double-down on President Xi’s Covid-zero policy. The Chinese leader needs a clean bill of public health - or the appearance of one - to help him win a third term in office at the 20th Party Congress in November.
In a front-page article published on Monday [Apr. 18] by Study Times, Ma Xiaowei [China’s health minister] urged the country to stick to the “dynamic zero-Covid” policy and take a clear-cut stand against “erroneous” thoughts of “coexisting with the virus”.
The bottom line was to prevent a large-scale rebound in cases and consolidate the hard-won results of pandemic control to welcome the opening of the five-yearly congress, expected in the second half of the year, he said in the commentary for the Central Party School journal.
But if you think getting that new home appliance delivered on time is going to be hassle, keep in mind that over 180 million people in China have been confined to their homes for weeks, and in Shanghai’s case, over a month. The latest reports of increasing Omicron spread in Beijing suggest that number will only rise.
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Have a nice weekend.