Transport of goods into one of China’s biggest manufacturing and export hubs has almost ground to a halt, reports The Wall Street Journal (April 21, 2022). As Shanghai’s lockdown to stamp out a raging coronavirus outbreak extends into its fourth week, logistics services in that industrial area have faced severe disruptions.
Trucking has been the worst hit, as strict local pandemic policies and arbitrary implementation of rules choke off the transport of goods. At Shanghai’s port, normally the busiest container port in the world, empty containers are stacked on docks waiting for trucks to deliver cargo.
The logistics snarls in and around Shanghai further add pressure to an already battered global supply chain and to rising prices of goods in the U.S. They also complicate the Chinese government’s efforts to reopen factories shuttered due to lockdowns. Logistics managers expect weeks to months before some international shipments return to normal.
On April 1, Shanghai authorities locked down the entire city to stem the spread of the virus, asking its 25 million residents to stay at home. This stringent act has had a ripple effect on businesses in the nearby region, an area of more than 160 million people. The region accounts for a fifth of China’s national gross domestic product. Daily truck volumes moving through Shanghai were down 70% compared with last month. Trucking costs have risen significantly as requirements for a negative Covid test result within 48 hours of travel and a host of bureaucratic approvals have discouraged truckers from taking loads to Shanghai.
Completed goods are accumulating in factories because of trucking delays and warehouse closures, while others have halted production after delivery of raw materials and supplies were disrupted. The trucking snafu has spilled over into other logistics areas. While Shanghai’s port remains operational, the shortage of trucks that could deliver cargo there meant containers were increasingly lying idle.
While the lull in Shanghai’s port activity would give overworked ports in the U.S. and Europe some breathing room in the short term, in the longer term, Shanghai’s cargo buildup is a bubble waiting to burst.
Classroom discussion questions:
- How does this impact U.S. supply chains?
- Why the stringent lockdown?