Shanghai lockdown sees global supply chain disruption intensify

from Shanghai Containment related to covid-19 could intensify global supply chain disruption and drive up already high shipping rates and input costs, according to ratings agency Fitch.

Fitch makes this point in a note entitled Macroeconomic data does not yet reflect the impact of China’s lockdown on supply chains.

Rising cases of Omicron in Shanghai led to a lockdown in late March with mass testing, people confined to their homes and transport restrictions in place. The volume of freight traffic in the Shanghai region thus plunged in early April and remains 80% lower at the end of March, according to Fitch. Shanghai handles one-fifth of China’s port volumes, with China in turn accounting for 15% of global merchandise exports.

“Lockdown measures that affect parts of China’s highly integrated supply chain are having ripple effects on other regions. Chinese authorities have tried to limit disruption by forcing workers to sleep in factories and at the Port of Shanghai in a “closed-loop” bubble with no direct contact with the outside world. Even so, the restrictions mean that ships are loaded and unloaded at a slower rate, leading to a buildup of carrier- containers waiting to dock at the port of Shanghai. Shipping analysts Windward estimate that 500 ships lined up in mid-April, compared to 260 in February,” says Fitch.

On top of that, a shortage of drivers means there aren’t enough trucks available to transport raw materials and empty containers to inland factories for manufacturers to fill and send back for export.

“Waiting times at the port of Shanghai increased and throughput in April fell sharply, with domestic exports falling around 5.3% month-on-month. The bottleneck in Shanghai is already affecting supply elsewhere, as suggested by the latest rise in the United States. [manufacturing] ISM Supplier Shipments Index for April,” says Fitch.

Windward recently said that one in five container ships, or 1,826, were waiting outside ports around the world, including 506 waiting to access Chinese ports.

Meanwhile, Fitch goes on to say that the Shanghai lockdown comes with few signs of improvement in global commodity shortages.

“Even before the latest lockdown in China, the time it took to transport cargo from Asia to the West Coast of the United States was twice as long as at the start of the pandemic, while shipping rates are six times higher than they were at the start of 2020,” said Fitch.

“Congestion at US West Coast ports has eased in recent months, but this may prove temporary. The container backlog in the Port of Shanghai will eventually flow to US West Coast ports, likely causing congestion during the summer months. shortages and constraints on distribution channels, supply chain disruptions are unlikely to be resolved quickly.”

Long Beach and the Port of Los Angeles import approximately 40% of all containerized cargo into the United States.

“As China maintains its zero Covid policy, further lockdowns will likely lead to disruptions in global supply chains,” Fitch said.

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