New lockdowns in China and War between Russia and Ukraine threaten global supply chains

Rising coronavirus cases in China, including in the economic hubs of Shenzhen and Shanghai, are raising fears of serious disruption to the global shipping industry and supply chain.

As the country grapples with its most severe outbreak since the initial wave in early 2020, the capital Beijing has doubled down on its unique "Zero Covid" strategy, prompting local authorities to impose strict prevention measures, including closures.

In Shanghai, China's largest city with a population of 24.9 million, local authorities have imposed lockdowns on entire neighborhoods, closed schools and restricted traffic in and out of the metropolis.

All residents in Shenzhen, a financial and technology hub bordering Hong Kong, will undergo three rounds of testing after 60 new COVID-19 cases were reported on March 13. All businesses, including public transportation, except those that supply food, fuel and other necessities, have been ordered to close or work from home. Foxconn, one of Apple's main suppliers, has already announced the suspension of its factories in the city.

This recent wave of infections in China is nothing compared to other countries and Hong Kong, but the Chinese authorities have decided not to risk it and have locked down entire cities to find and isolate all the infected people before the virus starts to spread more.

The capacity of the trucks will be limited and this will affect the flow of goods, via Shenzhen. Some alternatives are being considered through other parts of southern China, but it is not known if there will be more closures. Experts have warned that the strict containment policies of local authorities will greatly affect national and international transport.

Last year, when the Yantian Terminal was blocked for seven days, it took three weeks to return to normal. They created huge delays, trip cancellations that caused delays, and the final result was increased freight rates to meet the growing demand for shipping space. The supply chain industry was on the road to recovery in 2022, after two years of setbacks related to the pandemic. The repercussions of another port closure on supply chains and the cascading effects on inventories would be phenomenal.

Shutdowns in China will further reduce capacity and cause already inflated shipping prices to rise, and shock waves will be felt in the United States and America, and almost everywhere in the world.

Furthermore, the Russian invasion of Ukraine will only deteriorate the situation. Due to the sanctions imposed on Russia, the third largest oil exporter in the world after the United States and Saudi Arabia, the price of fuel has skyrocketed. As a consequence, the price of gasoline and diesel has already started to rise, which has a clear impact on the cost of transporting goods and implies surcharges in logistics. The situation could be even more worrying if the United States and Europe impose new sanctions, which would lead to higher inflation and a brake on economic growth.

The supply chain must prepare for another upheaval in the coming months, which will impede the flow of container movement as importers around the world prepare for the upcoming peak season later this year.


Written by YEN