China’s Fight Against Covid Puts Supply Chains in a World of Hurt

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ICAT Detroit Helps Shippers Feel Better

It’s crunch time in China, where the government’s restrictive Covid-fighting actions are adding to global supply chain stress and disruptions.

The world is watching and assessing the full impact of China’s campaign of forceful public health measures – including mass testing, quarantines, factory closings and seaport slowdowns.

To casual observers, the situation is notable because it threatens the Beijing Winter Olympics in early February.

To the world’s business community— dependent on goods and shipping from the world’s biggest trading nation — China vs. Covid is complicating prospects for a new year.

NO SMALL “HEADACHE”

Concerns are underscored by economists for the Hongkong and Shanghai Banking Corp., who warned of “the mother of all supply chain” headaches if the fast-moving omicron virus spreads across China.

Here at home, U.S. Federal Reserve Chairman Jerome Powell cautioned:

“If China sticks to a No-Covid policy, omicron can really disturb the supply chains again.”

At ICAT Logistics Detroit, navigating a logistics logjam means drawing on our more than a quarter-century of experience serving customers dealing with China, the Pacific Rim and dozens of other nations around the globe.

Our experienced team works hand-in-hand with partners and our parent company to provide timely, cost-effective solutions for shipping challenges from China to the coast of California and more.

We are tapping our global network and our on-site connections to track Covid-induced turmoil confronting China and markets in Southeast Asia.

THE FALLOUT CONTINUES

Conditions are ever-changing, with these trends and tactics in play:

  • Chinese authorities sent a firm, zero-tolerance message last year by partially closing the world’s third-busiest port (Ningbo-Zhoushan) after a single worker tested positive for Covid-19.
  • Earlier last year, it took a month for operations at China’s Yantian port to return to normal from a partial closure ordered after 150 Covid cases were reported in a neighboring city.
  • Tens of millions of Chinese this year were confined to their homes in government-mandates lockdowns.
  • Four Chinese port cities–Shanghai, Tianjin, Shenzhen and Dalian – established limited shutdowns to contain the spread of the omicron variant.
  • Airlines have canceled flights unexpectedly in Shenzhen and container shortages have affected Shenzhen and Hong Kong. Cathay Pacific, the main flag carrier of Hong Kong, said it isolated more than 100 crew after three pilots tested positive.
  • Lockdowns and mandatory testing have contributed to worker shortages at some manufacturers and ports, idling truck drivers and reducing truck traffic.
  • When 200 Yangtze River pilots were quarantined by Chinese authorities, backups and bottlenecks followed, causing widespread delays at one of China’s vital waterways.
  • In the wake of small outbreaks, Toyota halted operations at a factory in Tianjin and Volkswagen closed a plant in Ningbo. A supplier to Nike, Adidas and Uniqlo said it was forced to suspend operations in Ningbo.

HAPPY NEW YEAR?

Observances of Chinese New Year also have an impact. The holiday falls on Feb. 1 — 12 days earlier than in 2021. Bloomberg Business News reported that China’s Covid-Zero practices prompted sailors to expect longer than usual quarantine periods, possibly seven weeks. Some global shippers halted new container bookings to smaller ports in South China.

China’s war on Covid comes at a cost.

The ripple effect of shutdowns and lockdowns often is immediate and far-reaching. Tommy Wu, an economist at Oxford Economics, told Fortune magazine: “Imposing lockdowns and strict restrictions more frequently and widespread could carry significant economic cost.”

The Wall Street Journal reported that China’s efforts to contain Covid-19 outbreaks are rippling through operations around the world. Citing one study, the newspaper said a week’s delay of trade at Ningbo port could affect some $4 billion in commerce.

SHIPPING COSTS RISING

The cost of sending a standard metal container from China to the U.S. West Coast is more than triple what it was a year ago, according to an index by industry data.

Snags and snarls inside China put pressure on other port cities. When Covid-19 cases increased in Beilun, Ningbo, the government stepped up controls and regulations. The fallout: Cargo originally scheduled to go out from Ningbo was transferred to the already-congested port of Shanghai, adding cost and delays.

Hellenic Shipping News said “Conditions in China were a source of great uncertainty with restrictions on “the landside flow of cargoes in some areas and putting greater strain on the largest container port in the world in Shanghai.”

For China, the campaign to stamp out Covid is jeopardizing economic growth. Goldman Sachs predicts China’s growth will fall by half. Morgan Stanley said the slowdown could be even greater “should Omicron spread to other regions and lead to multiple city-wide lockdowns.”

NEW RESTRICTIONS ADDED

With the Beijing Winter Olympics just days away, China has further tightened Covid-19 restrictions. Among those rules:

  • China-bound airline passengers traveling through a third point are barred from entering the country.
  • Chinese residents who travel abroad may not be allowed to reenter if they visit an area hit by a Covid outbreak.
  • At least 70 flights this year from U.S. to China have been cancelled, a move criticized by U.S. officials. China also has cancelled flights from Canada and France, citing Covid concerns.
  • China said no tickets will be sold for the Olympic and Paralympic Games in Beijing. Instead, tickets will be distributed by authorities. Spectators invited during the games will be required to “strictly comply with Covid-19 prevention and control requirements, before, during and after watching the Games,” the Beijing Winter Olympics Organizing Committee said

The New York Post further reported that officials have banned spectators and athletes from cheering at the Olympics, scheduled for Feb. 4-20, as part of its Zero Covid policy. The Post observed: “Maybe they’ll hand out Olympic medals for boredom.”

Observers differ on when, or whether, China will relax its Covid-Zero policy after the Olympics. But there is general agreement that supply chain disruptions will continue at least until then.

Among the considerations are upcoming meetings of the Chinese Communist Party, scheduled to hold its 20th Party Congress in the second half of 2022. Chinese President Xi Jinping is expected to seek a third term in office.

Meanwhile, customers with shipping and logistics needs are expected to face hold-ups and inconveniences such as cancelled sailings and flights, equipment shortages and limited capacity.

FEBRUARY: A SLOW GO

February is expected to be slower than normal, industry experts say.

The chairman of the Eurasia Group — a New York-based  political assessment organization— suggested conditions could worsen before improving. Group President and Chairman Ian Bremmer called China’s covid-fighting policies the most important geopolitical risk for 2022 and predicted more shutdowns and supply chain upheaval.

BEST ROUTE TO GO

There is no substitute for having an experienced partner to help work through the Covid pandemic and the ins and outs of China’s policies.

ICAT Logistics Detroit is strategically positioned in the Pacific Rim to serve customers from Asia to America’s industrial heartland. You can count on our team for skilled, reliable, cost-effective delivery, packaging, customs support, tracking and visibility, freight forwarding and logistics problem solving.

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