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    Supply Chain Crisis Will Not End Anytime Soon - Part 4

    The global economy, ground transportation, and international shipping are about to experience another supply chain disruption due to renewed pandemic lockdowns across China with Shanghai being much worse than what occurred in Wuhan two years ago. The megalopolis of Shanghai is China’s commercial and financial capital that’s packed with 25 million souls and is home to some of the world’s busiest manufacturing centers, airports, and shipping ports. Issues arose in March when a massive testing regime and partial lockdown was implemented following the Olympics. China’s draconian “zero-COVID” policy escalated as positive cases increased and a total lockdown of Shanghai spread to roughly 370 million people in 45 cities across several provinces.

    Ukraine War and China’s COVID Lockdowns Add to Supply Chain Problems… “Global supply strains that started to ease in early 2022 are worsening again… threatening slower growth and faster inflation across the global economy… ‘We thought Russia was just a resources story that was going to push energy prices up — that it would make supply chains more expensive but it wouldn’t disrupt them,’ said Vincent Stamer, a trade economist with Germany’s Kiel Institute. ‘It appears a little more threatening than we initially anticipated.’ On top of the wartime setbacks, Omicron outbreaks are widening China’s use of strict lockdowns in major trade hubs. Maersk, the world’s No. 2 container carrier, said that depots serving local ports closed indefinitely, and trucking to and from terminals is ‘severely impacted.’” – gCaptain, Mar. 29

     

    Supply Chain Chaos Continues as Shanghai Lockdown is Extended Indefinitely… “Nearly all of Shanghai is now under lockdown with most residents unable leave their homes, even for food… Cargo handling at Pudong Airport has become ‘almost impossible… factories had to cancel bookings and most warehouses in Pudong are closed until further notice… Tesla’s Shanghai factory will not resume operations due to supply chain interruptions.’” – gCaptain, Apr. 4

    There are conflicting reports about how many ships are waiting to unload or load at Shanghai’s port facilities and how severe the impact on freight and cargo actually is, but the shipping industry is already anticipating what’s on the U.S. doorstep in the months ahead.

    Freight Rates Declining in 2022 in the Face of Uncertainties… “Current issues might contribute to a new supply chain storm and freight rate fluctuations. They point to the likely backlog of goods piling up in China with the potential for a new onslaught to the U.S. West Coast ports when operations head back to normal in China. Further, they point to the potential for further disruptions impacting freight rates suggesting that the return to normalcy in Chinese operations might coincide with the ILWU longshoremen contract negotiations due to start next month in anticipation of their contract expirations this summer.” – Maritime Executive, Apr. 6

    Ready for What is Coming? Shanghai Port Jam – Monkey Werx, Apr. 13

    Shanghai Port Jammed Apr. 13, 2022 via Monkey Werx

     

    Lockdowns and restrictions are creeping outside of Shanghai into adjacent cities and provinces. Kunshan city in Jiangsu is an important manufacturing center for numerous electronic components. Its production is deeply tied to companies in Taiwan that produce circuit boards and components for consumer electronics, autos, and a number of other industries.

    Another China lockdown jeopardizes electronics, auto supply chains… “Kunshan confines residents as Shanghai extends mass quarantine, setting stage for shipping gridlock… The protracted, spreading confinement measures are likely to cause supply chain disruptions far greater than last year’s partial closures of the ports of Yantian and Ningbo due to limited outbreaks and more on par with the manufacturing blackout that began in Wuhan at the start of the pandemic two years ago, said ocean shipping expert Jon Monroe.” – American Shipper, Apr. 5

    European business is sounding the alarm bell as their supply chains remain under stress from earlier pandemic lockdowns and new challenges arise from war in Ukraine and the West’s sanction battle with Russia.

    European Trade Group Warns China Lockdowns Threatening Supply Chains… “Joerg Wuttke, the trade group’s president, said erratic enforcement of zero-COVID rules is making it difficult for firms to adjust operations… While large manufacturing companies have been able to keep operations going with employees kept at factory locations and tested regularly — that plan hasn’t gone without snags. Even with permission to operate amid restrictions, work can be ‘very, very difficult,’ said Bettina Schoen-Behanzin, the chair of the chamber’s Shanghai chapter. And smaller firms ‘may face bankruptcy when they cannot deliver their products to the customer,’ said Klaus Zenkel, chair of the group’s South China chapter.” – gCaptain, Apr. 6

    Air freight is beginning to feel the pain associated with lockdowns and transportation disruptions that are spreading throughout China’s major ports, cities, and manufacturing hubs.

    Air cargo slumps in March as war, China lockdowns take toll… “The impact is being felt in freight rates, which are quickly climbing as capacity disappears faster than demand… Clive Data Services, an independent airfreight benchmarking service reported that shipment volumes declined 6.5% last month compared to the pre-COVID level in 2019 and were 4.5% lower than a year ago. Meanwhile, available cargo space on aircraft shrank 4% year-over-year and is now 14% less than before the pandemic… Logistics companies in China say the citywide lockdowns of Shanghai, Kunshan and other areas have made it nearly impossible for the air logistics system to function. Shanghai Pudong International Airport is technically open, but few special licenses are being issued for truckers to enter airport property and no shipments can be released or delivered. Factory production has plummeted. Passenger and cargo airlines have canceled thousands of flights, with Delta Air Lines suspending cargo handling there.” – American Shipper, Apr. 7

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    The trucking of freight is running into major logistical issues as lockdowns have spread beyond China’s eastern coastline. Airports are failing to pick up the slack from cargo disruptions that originated in Shanghai.

    Cargo backlog ripples beyond Shanghai as lockdown stops trucks… “More than 90% of truck capacity is out of service… Most warehouses in the city are closedLimited truck access to Shanghai port terminals is causing shipping containers to pile up and slowing ship transfers. Shanghai has seen an 80% decrease in container pickups from outside the lockdown area because of driver shortages and restrictions… Mediterranean Shipping Co., the world’s largest container vessel operator, on Thursday said it will begin offloading refrigerated containers at other ports because there are no available power plugs to connect to in Shanghai… AIT Worldwide, based in Itasca, Illinois, notified customers that cargo terminals at other airports are now reporting delays of their own with Shanghai Pudong International Airport effectively out of action… Seko also reported that an outbreak in Quzhou is spreading, with shipments scheduled for departure in the coming weeks needing to be postponed until the government settles on a course of action. Nick Bartlett, director of CBIP Logistics in Hong Kong, told FreightWaves cases of infection are increasing in Suzhou and all of Jiangsu Province and that Zhejiang is likely to next feel restrictive measures. ‘We have cargo stuck on trucks, in warehouses and container freight stations,’ in Shanghai and no new containers are able to reach the port there.” – American Shipper, Apr. 8

    Airport and Trucking Logistics Report Apr. 8, 2022

    Guangzhou city is situated on the southern coast near Hong Kong with a population of 18 million and is home to China’s busiest airport. It’s a major manufacturing hub within Guangdong province that’s exhibiting the first stage of lockdown hysteria (video). Summer is arriving soon and the U.S. is expected to experience fallout from the lockdown insanity taking hold throughout China. It will manifest with a prolonged supply chain crisis and higher inflation.

    COVID lockdowns in Beijing, Guangzhou, Shanghai and around country… “Guangzhou closed itself to most arrivals Monday… primary and middle schools have been switched to online classes… some residential communities have been partially sealed, and an exhibition center is being converted into a makeshift hospital to accommodate citywide testing. Only citizens with a ‘definite need’ to leave Guangzhou can do so, and only if they test negative for the virus within 48 hours of departure… Reports of both in-person and online supermarkets being emptied out over the weekend, amid fears that they will suffer the same lockdown fate and supply shortages that have pummeled people in Shanghai.” – SupChina, Apr. 11

     

    Containers piling up in China will eventually create massive congestion in the US… “Just as I warned on March 24, this lockdown will have a significant impact. The longer the delays, the greater the impact on U.S. inventories in the coming weeks. We have seen this horror show before and we all know the containers that are currently piling up will eventually make their way to the United States, creating massive congestion. Besides technology products, furniture and auto parts, there are seasonal items in these containers… Now the zero-COVID measures are extending to manufacturing hub Guangzhou. These lockdown contagions may be hailed as a ‘cure’ in China at combating the virus; unfortunately, they’re also destroying the health of the global supply chain.” – American Shipper, Apr. 11

    The U.S. State Department has ordered all non-emergency government staff in Shanghai to leave. I suspect what’s happening in China may provide some desperate politicos in the U.S. with ammunition they need to try and implement lockdowns and/or restrictions before a pivotal mid-term election in November. Before closing up shop tonight, here are a few articles to consider that were published today.

    • China’s Imports Drop, Exports Slow on Lockdowns – gCaptain
    • Shanghai vows punishment for lockdown violators as cases hit 25,000 – Reuters
    • President Xi Pledges Lockdowns Will Continue Until COVID Defeated – ZH
    • Apple Laptop Maker Joins Growing Covid Plant Closures in China – Bloomberg

    You can peruse my previous coverage on the “Supply Chain Crisis Will Not End Anytime Soon” in Part 1, 2, and 3, and “Fertilizer Inflation and a Supply Chain Crisis Begets Food Insecurity” in Part 1 and 2.

    Chaos in Shanghai – Lockdown, Protests, Looting, Arrests, Suicides, Starvation, Family Pets Murdered

     

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    Supply Chain Crisis Will Not End Anytime Soon - Part 4

    Supply Chain Crisis Will Not End Anytime Soon – Part 4