Supply Chains Feeling Pinch as Shanghai Lockdowns Endure
Pandemic-induced lockdowns in Shanghai are having ripple effects on global supply chains, as key factory workers and logistics personnel in the coastal economic hub have been confined to their homes and subjected to widespread testing.
On Friday morning, domestic officials logged a total of 21,222 new COVID-19 cases in Shanghai for Thursday, setting a new daily record for the city of 26 million people. Since the wave of infections began several weeks ago, officials have put in place a series of stringent measures to limit personal contact, causing significant disruption to local manufacturing and shipping sectors.
In order to cope with the new challenges, some companies are getting creative. Major automakers with operations in the city, including local state-owned firm SAIC, have started asking their workers to participate in closed-loop work models, whereby they sleep on the factory floors to eliminate the risk of external infections. Other technology firms – including computer chip giant Semiconductor Manufacturing International Corporation (SMIC) and iPhone assembler Pegatron – have managed to maintain production through similar adjustments.
Not all companies have chosen to pursue such aggressive methods. Tesla, which manages a major manufacturing facility in Shanghai’s eastern Pudong district, has opted to halt local operations since March 28 as a result of the lockdowns, with no clear date set for a full resumption.
The Caixin China General Manufacturing PMI index, which measures the country’s overall production performance, contracted in March 2022 at the fastest rate seen since February of 2020, when the initial coronavirus outburst was taking its toll in the city of Wuhan. According to the report, firms cited pandemic control measures as the leading cause for the downturn, causing disruption to “operations, supply and dampened customer demand.”
The “zero Covid” approach adopted by domestic authorities has remained largely unchanged since the original wave in early 2020, meaning that comparatively small numbers of confirmed cases can cause major disruption for local business and the transport of people and merchandise.
Reports of major lockdowns in Shanghai recently have caused concerns about the impact such measures will have on global supply chains, given that the city’s port is considered the busiest in the world.
However, despite some rumors of mass congestion of container ships in the waters east of Shanghai, port authorities and major shipping companies have affirmed that operations are continuing smoothly.
Rather than sea-based shipping links, the core problem for global supply chains presented by the Shanghai lockdowns lies in landside logistics. Although shipping containers are arriving as planned, stringent virus testing requirements for truck drivers has caused goods to pile up in the port’s warehouses.
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Last week, leading international shipping firm Maersk issued an advisory to its clients, suggesting that the lockdown measures could restrict trucking services in and out of Shanghai by as much as 30%. With the recent introduction of tighter measures following a spat of confirmed cases in the neighboring city of Ningbo, which is home to another massive seaport, this figure could rise further still.
In response, many companies have opted to divert goods to other regional logistics hubs. An update published Wednesday by Maersk claimed that “with more airlines cancelling [Shanghai-bound] flights for the coming days, more volumes will be shifted to other airports in China, including Zhengzhou and Beijing.” The company also said that in light of challenges to trucking networks, it would be boosting alternative “multi-model services,” including barges and rail transport.
A survey published on April 1 by the American Chamber of Commerce with participation by 167 member companies – 120 of which maintain operations in Shanghai – revealed that 57% of respondents had experienced disruption to their supply chains, including 86% of manufacturers.