Shanghai's Covid-19 lockdown may intensify global supply chain disruption and push up already elevated shipping rates and input costs, credit rating agency Fitch says.
Fitch makes this point in a note titled Macro Data Yet to Reflect Impact of China’s Lockdown on Supply Chains.
Increasing Omicron cases in Shanghai led to a lockdown in late March with mass testing, people confined to their homes, and transport restrictions in place. Freight traffic volume in the Shanghai area thus plunged in early April and remains 80% below late-March, Fitch says. Shanghai handles a 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 have ripple effects on other regions. The Chinese authorities have tried to limit disruption by requiring workers to sleep at 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 vessels are being loaded and unloaded at a slower pace, resulting in a build-up of container ships waiting to dock at Shanghai’s port. Shipping analysts Windward estimate that 500 ships were queueing in mid-April, up from 260 in February," Fitch says.
On top of this, a shortage of drivers means there aren't enough trucks available to take raw materials and empty containers to inland factories for manufacturers to fill and send back for export.
"Waiting times at Shanghai port have surged, and throughput in April declined sharply with national exports dropping by an estimated 5.3% month-on-month. The bottleneck in Shanghai is already affecting supply elsewhere, as suggested by the latest uptick in the US [manufacturing] ISM supplier deliveries index for April," says Fitch.
Windward recently said one in five, or 1,826 container ships, were waiting outside ports around the world with 506 of these waiting for access to Chinese ports.
Meanwhile, Fitch goes on to say the Shanghai lockdown comes with few signs of improvement in global goods shortages.
"Even before the latest lockdown in China, the time taken to transport freight from Asia to the US West Coast was twice as long as it was at the start of the pandemic, while shipping rates are six times higher than they were in early 2020," Fitch says.
"Congestion at US West Coast ports has eased in recent months but this could prove temporary. The container backlog in Shanghai port eventually will make its way to US West Coast ports, likely causing congestion in the summer months. But with US ports struggling with staffing shortages and constraints on distribution channels, supply-chain disruptions are unlikely to be resolved rapidly."
Long Beach and the Port of Los Angeles import about 40% of all containerised goods into the US.
"While China maintains its zero-Covid policy, further lockdowns will likely lead to disruptions to global supply chains," Fitch says.
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27 Comments
I'm starting to believe the Shanghai lockdown is strategic. Supply side inflation is killing 'the west' and they know it. US dollar hegemony is loosing its ability to command control its value, due to the threat of catastrophic debt collapse. A unipolar economic system crash is guaranteed. A multipolar economic system is guaranteed. Change my mind.
Yes I raised the theory of Russia and China colluding to bring down the west about a month ago but it generally wasn't well received! Which is fair enough as if its true, its a fairly crazy plan. Russia destroys the energy market with its war in Ukraine, getting the inflation ball rolling, China locks down its people and spiking inflation in consumer/shipped goods. Both aimed right at the heart of the western dominated financial system after they have flooded their systems with funny money.
If true, the question would be...are they hurting themselves more than they are hurting the west? Or is a question of who has the most to lose? (the US?)
Incompetence can be subjective. Do you think if China wanted to control this variant they could have? It may have taken extreme means compared to 'the wests' best efforts, but we can all see they have extreme means down pat. Occam's Razor is the easy fall back and I am one to always consider that position fully before other positions, but...over time I like to review my assumptions and keep checking the viability of them. I am leaning towards something other than OR at this point but willing to consider moving back from that if further data comes to light. I find it hard to believe China haven't identified the source of the outbreak by now, don't you? I can't find any information about the source anywhere in western media. Do you happen to know of a source that has that information?
I think many companies have been trying to build inventories anticipating these issues would arise.
What's frightening to me is that the Chinese government is so wedded to this idea of 'zero covid'. There is no sign yet they want to roll out a more effective vaccine. There is no quick fix, in fact there is no fix being implemented at all. #TeamTransitory probably anticipated rational behaviour when forecasting a return to trend on inflation.
The current COVID death per day in NZ, say 20 death per day, would imply around 5,500 death per day in China.
Lives first and far more paramount than economic losses as the fundamental driver of the Chinese Zero-COVID policy should applauded by the whole human race.
This is a stark contrast with what is going on in ALL self-claimed democratic countries, where vulnerable people are left to die of COVID!
"[The Shanghai government] issued guidelines for moving out of lockdown. The plan, which does not include a timeframe, divides communities into three categories depending on how recently new cases have been found there. The first category is the most strict: residents are unable to step outside their homes, which may be barricaded. The second level allows residents to walk around their housing compound, but not on the street outside. The third allows for residents to be issued passes to walk around their neighbourhoods. But these guidelines have been widely disregarded by district-level authorities. On May 9th officials in central Shanghai roamed the streets with bullhorns, warning that walking outside was no longer permitted."
(from the economist)
For all that, it's almost certainly not going to work. And your figures are at least an order of magnitude out, given that the MoH is incapable of distinguishing between deaths with and of covid. While that's not such a big deal when only a tiny fraction of the population has it, it's a very big distinction when the disease is widespread.
It certainly seems "out of character". I would have expected a campaign depicting heroic comrades facing the virus head on to keep the economy going for a glorious and heavenly future.
To be fair the West has also been known to accept that deaths are going to occur. This is the task of the leadership, to make the hard decisions. I think most Western people are ultimately accepting of deaths simply for the sake of freedom. Our own government came close to crossing the line and going too far in cancelling freedom for the sake of saving lives. There is no actual red line, I guess it's kind of intuitive. Sweden seemed to have a good grasp early on of what was required and how much it meant.
Yeah, reckon most people are pretty pragmatic and reasonable, and now that NZ basically did all it could hope to - with the good fortune of being able to live quite openly compared for the longest time while waiting for coming vaccines. With the population given the chance to be well vaccinated, it's opened up. Meanwhile, China...
There are always those who see a conspiracy for dictatorship and communism etc. under every rock, and they've certainly come out of the woodwork in the last years. And will again, when the next possible conspiracy comes along.
Had a lovely older gentleman say to me quite seriously the other day that the parliamentary grounds protest was a false flag operation by organised Antifa. Wowzers. Completely sincere in his belief too.
It's not so much about the health ideology, which I myself ascribe to where possible, it's about the timing.
Yes Omicron variant is more contagious, but it's also less deadly than the Novel version. China was able to effectively contain other variants until now, and I feel they could have continued to contain it, although the measures would have been extreme compared to even the best western methods.
It could be that this variant was just too sneaky, or it could be an outbreak was allowed to occur at this moment in time. I'm leaning towards the latter due to its overall expedient opportunity factor.
TBH I'm for a multipolar world, as I ascribe to the principle that 'power corrupts and absolute power corrupts absolutely'. That is where we've been and have continued to head for decades now.
Sorry Xing, your comment is either a lie or total self delusion.
Xi has claimed that other countries failure to control COVID, and China's own claimed success, as an indication of the superiority of Xi and the Chinese political system. He has made references to that effect, and commentary on this being used to further Xi and the CCP control started as early as articles written in July 2020.
Problem for China is the same as for NZ, our attempts to control Omicron failed dismally, with the population quite free to criticise Jacinda Ardern and her government for their hamfisted ideals and failures to learn from earlier outbreaks. A drop in popularity soon changed their direction.
Unfortunately, the consequences of such dissent in China might mean you disappear, and with XI tying his personal political career, and the entire communist system supremacy to their ability to master Covid, there is little chance of a backdown.
The "lives being protected" through Chinas lockdown actions are XI's political life, his lifetime rule of the party, and possibly even to the CCP control of the country and population if they don't accept reality and manage the disease as other have had to do.
And is it the A motive or the B?
A is pull the plug on the West, take over the petro-currency, tell the West - which really a pile of irreconcilable debt - to stump up. Their turn to use us as cheap whatever.
B is to realise there isn't room for us all on this wee tennis-ball floating in space - and that they want to be last tribes standing. Might even be eyeing each other up as per Hunger-Games; co-operation but ultimately...
C = Bring about a multipolar order, dampening US 'democracy' adventurism and forcing a fair go for all. Maybe I'm incredibly naive, but according to everything I know outside of the Western narrative(I'm a Kiwi of early settler European decent and lived in the west all my life) brings me to the belief that China doesn't aspire to rule the world. They would much rather work within a system that allows them a fair go at whatever destiny holds for them. They are smart enough to know, since they've been able to see the experiment in action, that it takes too much treasure and effort to bend the world to your will by force. They can see that, just as we can, and ultimately we all see it ruins your own nation and future in the getting.
Perhaps, but the more likely explanation is that XI used Covid control as their demonstration of Chines communist system superiority over liberal democracy.
Failure to control that would make his statements to the people a lie, risking his personal political career, and also the control and reputation of the party. Both must be protected at all costs. Those paying the costs are the Chinese cities in lockdown, lucky to be able to eat, now risking arrest and torture to protest their treatment.
China plays a long game, but in the short term, they could care less about the US. Their own positions of power and control however, that cannot be risked at any cost.
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