What do Shanghai's lockdowns mean for global supply chains?

China’s biggest city grinding to a halt has presented major challenges across global supply chains. And the situation does not look as though it will ease up, with the world still waiting to see if China digs in its heels and continues to pursue a zero-Covid policy.

Shanghai has seen a significant reduction in ocean vessels berthing, with some having been diverted to Ningbo. As factories begin to open up again and ramp up their production, the focus will be on the raw materials needed to maintain production, easing the bottlenecks as product is moved from docks to ports.

The freight diversion to Ningbo has put a temporary ‘band-aid’ on a bigger problem of getting goods to move in a normal flow on imports and exports and there are already significant price increases on freight from China to the US and this rate rise will not slow down as demand and space to move product grows.

When freight does make it to US ports, the bottlenecks will be the yard space to move containers and ensure that truck drivers are positioned correctly. This surge in volume will likely cause inflated rates as shippers work to get product to their doors and onto customers as quickly and efficiently as possible.

There is much to be gleaned from the current situation in Shanghai, and with restrictions now being imposed on Beijing, what effect would a lockdown in the capital have on global supply chains?

The severity of the impact from a lockdown in Beijing would firstly be determined by how quickly the spread of COVID can be contained. Currently, millions have been told to work from home, but the government has avoided calling it an official lockdown, so we will have to wait and see about whether it continues to spiral.

Although Beijing is not a major factor in how ports operate, a lockdown in the capital would have a more muted impact than the shutdown in Shanghai. However, if the lockdowns put inter-China freight in jeopardy, it may add further strain on the already limited and overextended truck driver pool.

Whether Beijing goes into a full lockdown, or the Shanghai restrictions continue, previous disruptions have taught us that delays and inflated rates due to constant demand can be expected. We’ll likely see even more exaggerated product shortages, particularly in the electronic, appliance and automotive sectors.

Further to this, the product shortages and lack of availability coupled with extremely high demand has also caused concern on the labor markets. Manufacturers across the globe must adjust their production schedules based on the product they can receive and realistically get to their customers without overloading their own facilities, which likely means reducing production hours, or even staffing if the problem deepens.

This uncertainty has created conflicting priorities between meeting customer demand, maintaining trained staff and keeping costs down when price increases are being experienced on every front. During these times it’s vital to your organizations health to assess your current risk, mitigation plans and develop long term strategies drive through data visibility. Proxima is uniquely positioned to help you evaluate opportunities and target the largest gaps in your supply chain planning. ?