Global Supply Chains under Pressure due to New Lockdowns in China
Recent coronavirus outbreaks have forced China to implement new restrictions that can further strain global supply chains, resulting in disrupted flow of goods and even higher inflation. Global supply chains are already under pressure due to port congestions, delayed ships, and a surge in demand.
New Challenges Ahead
The tightening restrictions in the Jilin province and cities such as Shenzhen and Shanghai may cause further delays, stain port capacity, and increase freight rates on major routes, which already have reached sky-high levels.
Major carriers have warned that test requirements for truck drivers and restrictions may cause delays in transport to and from major Chinese ports. Delays in transport are mainly associated with frequent testing in ports such as Yangtze, Shanghai, West Pearl River Delta, Shenzhen, Hong Kong, and elsewhere. Some carriers have already been forced to temporarily close warehousing facilities in the city of Shenzhen despite the fact that port terminals still operate as usual. Due to 3,400 cases of infection, the Chinese authorities announced a week-long lockdown of Shenzhen and undertook a mass testing. Subway and bus lines have closed temporarily and so did businesses, except for companies that provide essential and indispensable services. Businesses have also implemented work from home protocols.
While Covid-19 restrictions have not been introduced at Yantian Port, controls have already been upscaled. All ships that are due to depart this week have been loaded and sailing on schedule. However, no loading of vessels will take place from next week on, and some carriers may be forced to skip the port.
There have also been outbreaks in Shanghai, resulting in restrictions on bus transport and intra-city transit. International flight arrivals may also be rerouted which is what the authorities demand. Tight regulations have been implemented in the Jilin province as well due to new coronavirus outbreaks.
As a result, factories in Indonesia, Malaysia, and Vietnam could see an increased demand for goods. Some have already moved their factories and facilities for storage and distribution close to where their customers are. Others have moved their plants to neighboring countries in response to congestions and supply chain bottlenecks.
Implications for Carriers
The new restrictions, which are in line with China’s zero-Covid policy, may cause shutdowns of ports that will disrupt the global flow of goods at a time when the Ukraine crisis unfolds. The Ukraine crisis already resulted in the closure of ports. Additionally, some carriers have announced they will no longer be calling at Russian ports. Cargo shipped to Ukraine and Russia has been rerouted to ports across Europe, causing further delays and congestions. According to experts, we could see freight rates fluctuate regionally. China’s zero-Covid policy and restrictions have a negative impact on global supply chains while ships ending up at Europe’s ports could affect regional routes. Both regional and global developments increase pressure on stretched supply chains which could mean that normalization is pushed back into the future.