Harsh Reality of Shanghai’s Lockdown and The Supply Chain

Since March 27, authorities in Shanghai began a snap lockdown of the city’s roughly 26 million residents after a mass testing revealed “large scale” Covid-19 infections.

Since then, stories of desperate citizens struggling to find food have spawned rare protests in the city—and viral videos of residents screaming from their high-rise apartments to share their frustration. But despite the outrage, President Xi Jinping said last week that China’s zero-COVID policy “cannot be relaxed.”

That’s bad news for supply chains that are already feeling the stress of the Shanghai lockdown. While authorities have stepped up their efforts to allow some production at factories around the city to continue, supply chains in the region are in a dire state. The Shanghai Commission of Economy and Information Technology, the city’s industrial development authority, said last Friday that it had picked 666 companies, mainly in the automobile, semiconductor and energy industries, to resume production.

At the port of Shanghai, the largest container port in the world, ships are backed up, waiting to unload their cargo. This graph from the maritime and aviation intelligence firm VesselsValue puts the depth of the crisis into perspective. 

Rodrigo Zeidan – Prof of Finance & Economics, NYU Shanghai / @RodZeidan on Twitter

It illustrates the staggering number of ships waiting to load or discharge their cargo in Shanghai compared to historical averages. 

While the port has remained open throughout the lockdown, unloading ships has been a challenge due to strict restrictions that have put 90% of the trucks supporting import and export deliveries out of action. That’s led thousands of shipping containers to stack up at the port in a nightmare similar to what the West Coast of the U.S. saw last year.

The snarled supply chains in Shanghai and other cities have experts like Zeidan sounding the alarm on the potential effects on the global economy and inflation. In an April 14 report from the investment bank Bernstein, analysts warned that the macro impact of China lockdowns “could be quite high” and isn’t adequately priced into economic expectations. 

Economists are also fearing the worst.

“The more severe it gets, the more the impacts will be pronounced,” Liang Yan, an economics professor at Willamette University, told the South China Morning Post this week. “These transport and supply-chain disruptions are going to feed into the global supply-chain problem and the U.S.’”

Information sourced from here