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Home/News/Business/Supply Chains/Shanghai tries to ease supply chain crunch amid
lockdown
Air CargoAmerican ShipperNewsSupply ChainsTop Stories


SHANGHAI TRIES TO EASE SUPPLY CHAIN CRUNCH AMID LOCKDOWN


GOVERNMENT REOPENS SOME FACTORIES UNDER STRICT CONDITIONS, PRIORITIZES LOGISTICS

Eric Kulisch Follow on Twitter Tuesday, April 19, 2022
3 minutes read
New cars being produced at the Volkswagen plant in Shanghai. VW is one of
several hundred factories that can reopen this week under strict COVID measures.
(Photo: Shutterstock/Jenson)
Listen to this article

0:00 / 5:20
1X
BeyondWords

Chinese officials on Monday issued new guidelines to normalize industrial
production and logistics flows, part of an effort to minimize the impact of
strict lockdown measures in Shanghai. Under rules endorsed by the central
government, localities will self-select specific companies in critical
industries that can restart operations.

A statement from the Ministry of Industry and Information Technology (MIIT) was
one of the first times the government has acknowledged the three-week lockdown
of Shanghai to squash COVID is having negative economic repercussions. Shanghai
reported 27,613 positive COVID cases on Tuesday, including more than 3,000 new
infections.

Various economists have forecast that shutting down Shanghai for so long could
slash China’s monthly economic growth by several points. Spanish financial
services firm BBVA last week estimated the lockdown could reduce the official
GDP target of 5.5% by 1 or 2 points.

“Efforts must be made to break through the blocking points of logistics and
transportation, promote the resumption of work and production in areas greatly
affected by the epidemic as soon as possible, focus on ensuring the smooth
circulation of key industrial and supply chains, vigorously support small and
medium-sized enterprises, and promote the smooth operation of the industrial
economy,” the MIIT said Tuesday.

Shanghai city officials responded by releasing a “white list” of more than 660
enterprises, many in the automotive, semiconductor, consumer electronics and
biopharma sectors, permitted to operate if workers are kept in a “bubble”
environment. The list includes state-owned automaker SAIC Motor Corp.,
Volkswagen and Tesla’s electric car factory. 

Some plants continued to function at reduced capacity during the lockdown by
operating “closed-loop” systems with workers living within the campus instead of
returning home. Now the government-picked firms also must keep employees at
factories and warehouses to avoid contact with the public and reduce the risk of
transmission. 



The MIIT has set up a digital platform designed to coordinate the phased
resumption of factory work and logistics operations and provide lists of truck
drivers with green health permits and negative COVID tests who are allowed to
move around Shanghai.


CHINA LOGISTICS CHALLENGES REMAIN

The reopening of manufacturing and freight transportation in cities subject to
mass sequestration could ease the growing backlog of import and export shipments
that has created another huge chokepoint for global supply chains. Whether there
will be near-term logistics relief likely will depend on how the new work rules
for factories and transport are implemented.

A major challenge for factories is getting raw materials and components needed
to maintain production while access to the ports is sharply reduced and many
supplies are stuck offshore on waiting vessels. 

The Tesla (NASDAQ: TSLA) plant opened with only one of its two shifts, cutting
productivity in half, according to a tweet from Ming-Chi Kuo, an analyst at TF
International Securities. At that output, Tesla has about 2.5 weeks of inventory
and can produce 25,000 to 30,000 units per month, down significantly from
pre-crisis levels. Kuo said Tesla’s hourly work rate won’t return to normal
until mid-May, at the earliest. 



Chicago-based AIT Worldwide Logistics said in a customer update Tuesday that
many highways in Zhejiang province have reopened, but booking trucks for
less-than-containerload and full containers remains difficult. 



While the Port of Shanghai continues to operate, vessel loading has decreased
20% to 30%, and several carriers, including Maersk, ONE and 2M are currently not
calling on the stop, it said.

The strict COVID measures continue to limit freight operations at Chinese
airports too. 

Zhengzhou Xinzheng International Airport is now allowing trucks to enter and
leave the terminal if they adhere to all quarantine protocols. On Saturday,
Guangzhou Baiyun International Airport suspended all import operations until
further notice. And import operations at Shenzhen International Airport remain
delayed, with trucks waiting five to seven hours to retrieve freight from the
terminal, AIT Worldwide reported.

Analysts expect the buildup of deferred cargo to take time to draw down. They
worry that when the wave of pent-up shipments reaches U.S. ports, it will
reignite congestion on a scale similar to last year when nearly 100
containerships were parked in the ocean outside Los Angeles and Long Beach.

Click here for more FreightWaves and American Shipper stories by Eric Kulisch.


RECOMMENDED READING:

Chinese lockdowns will create shocks to American supply chains (but China is the
biggest loser)



Get ready for the next supply chain shockwave

Another China lockdown jeopardizes electronics, auto supply chains

Cargo airlines cancel flights as Shanghai enforces COVID lockdown




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Tags
China COVID lockdown China manufacturing port congestion Shanghai Supply chain
disruption
Eric Kulisch Follow on Twitter Tuesday, April 19, 2022
3 minutes read

Facebook Twitter LinkedIn Reddit Share via Email


ERIC KULISCH

Eric is the Supply Chain and Air Cargo Editor at FreightWaves. An award-winning
business journalist with extensive experience covering the logistics sector,
Eric spent nearly two years as the Washington, D.C., correspondent for
Automotive News, where he focused on regulatory and policy issues surrounding
autonomous vehicles, mobility, fuel economy and safety. He has won two regional
Gold Medals from the American Society of Business Publication Editors for
government coverage and news analysis, and was voted best for feature writing
and commentary in the Trade/Newsletter category by the D.C. Chapter of the
Society of Professional Journalists. As associate editor at American Shipper
Magazine for more than a decade, he wrote about trade, freight transportation
and supply chains. Eric is based in Portland, Oregon. He can be reached for
comments and tips at ekulisch@freightwaves.com
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