Lockdown in Shanghai and supply chain

On March 28, lockdown measures on one side of Shanghai, Pudong, came into effect. On April 1, the other side of Shanghai, Puxi, entered lockdown. It is estimated that the measures will impact China’s GDP 2022 growth by 0.15 percent. To prevent the slowdown, the authorities announced new stimulus policies. Shanghai is not only the biggest financial hub but also the biggest port in the world. How does the lockdown in Shanghai impact the global supply chain?

Lockdown in Shanghai and supply chain

We have already written about the effects of hard lockdowns in major Chinese cities, such as port congestions. During the lockdown, operations in Shanghai port still run, but they are limited. Some of the staff are in quarantine, and some work in a closed-loop system, meaning they practically live at the site. Factory workers, warehouse staff, and truck drivers are in a similar situation. The truck capacity plummeted to about 10 percent, as you need a special temporary permit to move in/out of the city.

The situation is extremely tricky when it comes to refrigerated containers in terminals – carriers and port authorities do not guarantee that cargo will survive unscathed.

The reduced production capacity of factories, the shortage of drivers, limited operations in terminals, and the reduced number of available containers disrupt the supply chain, which should rebound to its full capacity after the long Chinese New Year holiday season.

Solutions to the problem

Due to congestion in Shanghai’s Yangshan and Waigaoqiao ports, carriers skip Shanghai or cancel sailings altogether; THE Alliance and Ocean Alliance have already canceled dozens of sailings to Shanghai. Instead, the cargo was redirected to other ports like Ningbo-Zhoushan. However, there are some restrictions on movement between Shanghai and other regions of China; therefore, the movement to Zhejiang Province, where the port is located, is difficult. Consequently, customers face high freight rates; in Shenzhen, which was previously locked down, trucking costs have soared 300 percent.

Cargo airlines also redirect aircraft to nearby airports in Zhengzhou, Beijing, Qingdao, and even Wuhan, Hangzhou, and Nanchang, omitting Pudong airport. The air shipments can take up to a week, excluding the 3-4 days for processing.

The complex supply chain grapples with pandemic restrictions, global trade turmoil, war, and increasing tension in international relations. Containers stuck in China contain goods like electronics, furniture, auto parts, and seasonal items. This situation causes a shortage of goods on the market and delays in production. As congestion in Chinese ports reduces, destination ports around the world will be congested. Faced with delays of cargo ships and cargo planes, as well China-Europe railway disruptions, businesses must change tactics, consumers – change their habits. No one knows when the current domino effect will be stopped.

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