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IndustryNet Blog

U.S. Manufacturers Brace for Supply Chain Fallout from China Lockdowns

Posted by IndustryNet on Tuesday, April 26, 2022

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Just as U.S. manufacturers contend with supply chain disruptions stemming from the war in Ukraine, a new threat has emerged with drastic COVID lockdowns in China potentially wreaking global supply chain chaos once again. Similar to what we experienced at the start of the pandemic, severe lockdowns in the world’s second-largest economy are slowing the flow of cargo to and from China’s ports, potentially contributing to shortages and inflation, and creating supply chokepoints across the globe.

China Lockdowns: What U.S. Manufacturers Should Know

In response to its rising COVID-19 cases, China enacted a zero-COVID policy, and draconian lockdowns were established in Shanghai, a city of 25 million and the epicenter of the outbreak. For weeks, residents have been sequestered to their homes and businesses shut down, impacting operations at major companies such as Foxconn, Bosch, Tesla, and Pegatron, and many others.

The lockdowns in Shanghai began April 2nd and since then other parts of China have followed suit, with 45 cities in some version of lockdown. As a result, China’s zero-COVID policy has led to near-zero manufacturing. Plants have idled, transportation has slowed to a trickle, and cargo is piling up. Containerships are stuck in port, waiting to unload and a shortage of truckers and port workers have prevented goods and materials from being transported either to or out of port.

This has, of course, impacted global sourcing activity, with components in the automotive and electronics sector—particularly semiconductors—at most risk.

Says Craig Fuller, CEO of Freight Waves, “American businesses have become dependent on low-cost goods coming from Chinese suppliers. But in a post-COVID world that may be entering the Second Cold War, reliance on China means that American businesses are held hostage by an autocratic regime that seems oblivious to the damage it is doing to its own economy, much less the global one.”

Containerships Stuck

Due to the lockdowns, containerships stuck in major port cities such as the Port of Shanghai and Quingdao have more than doubled since February and this port congestion is starting to ripple across the globe, starting with ports in Southeast Asia. Windward, a maritime AI company, reports that a fifth of the world’s containerships are now stuck in port. Those waiting in Chinese ports represent more than a quarter or 27% of all stuck ships.

China’s Response

On April 18th, China issued new guidelines to mitigate the nation’s COVID-19 impacts on businesses, allowing municipalities to designate critical-industry operations that can be allowed to restart production.

Shanghai officials, for instance, have released a list of more than 660 companies that they will allow to resume production, conditional on firms maintaining strict social distancing protocols and “closed-loop” arrangements, whereby employees live on-site and do not have contact with the public.

Caution: Bottlenecks Ahead

Although the easing of COVID policies on businesses is welcome news, the restarting of production in China will also create extreme bottlenecks across the globe. Similar to the port congestion we saw in 2021 and beginning of 2022 in the Port of Los Angeles, once China’s lockdown is lifted and products begin to move, we’re likely to see a surge in container buildup at U.S. ports. This will contribute to the lagging delivery times and higher prices that have plagued the sector for more than a year.

The cargo buildup will also raise the price of container freight rates, which have already been elevated due to the pandemic and the war in Ukraine.

U.S. Manufacturers More Prepared for Disruption in 2022

Although China’s current lockdown policies are expected to have an impact on the global supply chain comparable to the early days of the pandemic, U.S. manufacturers are likely more prepared than they were two years ago. For one, inventories are at an all-time high, making it easier for companies to weather the blow.

Additionally, during the great disruption of 2020, many U.S. manufacturers took measures to address vulnerabilities in their supply chains. As a result, more manufacturers are a in a stronger position, using services like IndustryNet to find new domestic suppliers and move their supply chains closer to home.

Said Tom Dubin, CEO of MNI, compiler of the industrial data that powers IndustryNet. “Over the past 12-18 months, we’ve seen traffic to IndustryNet increase significantly as more companies rethink their supply chains and look for suppliers close to home. We expect this trend to continue as geopolitical risks are factored more heavily into supply chain decisions.”

Crisis-Proof Your Supply Chain

While no one is immune to global supply chain disruptions, securing dependable, domestic suppliers is a winning strategy for protecting your supply chains from geopolitical risks. If you’re looking for domestic suppliers, start with IndustryNet, the free industrial marketplace, connecting millions of industrial buyers with suppliers of more than 11,000 products and services. Search, sort and quote for free by starting here.

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