War, inflation and Covid lockdown in China are ought to be called hurricane for the global supply chain.
When severance occurs in China, it is noteworthy since the country houses nearly a third of the world’s manufacturing capacity.
If you buy something online, there are chances, it was manufactured in Shenzhen, a metropolis of 17.5 million people in the southeast that is home to approximately half of China’s online retail exporters.
As a result, when Shenzhen went into a six-day lockdown on Sunday following an enormous increase in Covid cases, it sent shock waves across the global business community. Other important cities and provinces, like Shanghai, Jilin, and Guangzhou, have since been subjected to restrictions.
Companies had to stop production, and cities transformed into ghost towns.
As per Project44, which tracks how freight moves across the world, the number of ships waiting at several Chinese ports has already increased. We witnessed a 28.5 percent rise in the number of vessels queuing outside of Yantian’s port, which is a significant export port for Europe and North America, says Adam Compain, project44’s senior vice president.
Yantian is the same port that was closed last year due to the Covid pandemic, creating huge delivery delays around Christmas.
The new curbs come just as China’s manufacturing output was beginning to improve following the Chinese Lunar New Year holidays in February.
According to Steven Lynch, managing director of the British Chamber of Commerce in China, “it’s a double-edged sword.” “China will come down swiftly, causing major disruptions, but everything will return to normal relatively shortly.” Companies also appear to be considerably better prepared this time. “We’ve seen similar lockdowns before,” Mr. Lynch continues, “so corporations have put in a robust supply chain management.”
Amazon, for example, purchased more China-based goods to cushion any potential interruptions during previous Omicron surges, and it does not expect a big disruption from the new measures.
As per the statement of Amazon’s spokesperson to BBC, Amazon can mitigate disruptions by moving available freight to its regional neighboring warehouses.
Foxconn, which manufactures iPhones for Apple, is another example. It has attempted to move production to other manufacturing locations while resuming production by requiring staff to work in a closed-loop system – or bubble – on its campus, where people live and work.
It’s probably easier for Foxconn, Dan Wang, chief economist at Hang Seng Bank China, argues.
However, many of those producers rely on the shipment of additional parts, most of which are shipped within the same region, making it extremely difficult to transfer because transportation within China can also be disrupted. He says further.
Impermanence and brevity
China’s zero-Covid – or virus-elimination – plan has received renewed attention because of the issue.
President Xi Jinping said the country would keep to its policies on Thursday, but he also stressed that pandemic measures should not create economic hardship in a meeting of the country’s top leaders.
If China maintains its Covid strategy of zero or near-zero, China’s economy and the global consumers may endure the consequences.
There are hints it is enforcing longer-term costs, which is causing some corporations to reconsider their positions in China.
By looking at options other than China, Alvin Ea, CEO of Haulio, Singapore’s largest container transportation platform, feels the business has become much more resilient.
“Many of the players have already diversified some of their resources and strategies so that they don’t put all their eggs in one basket,” he says.
“From a South East Asia perspective, we could see an uptick in orders at some Vietnamese, Malaysian, and Indonesian companies.”
Xeneta’s principal analyst, Peter Sand, agrees.
“Contingency plans for companies can range from increasing inventories to establishing production facilities in neighboring nations, or the much more expensive alternative of bringing some manufacturing back closer to where their primary consumers are,” he says.
According to Michael Hart of the American Chamber of Commerce in China, several members have been considering shifting operations, but this is still a small percentage.
“However, last year, 22 percent of those considering moving operations cited Covid-related restrictions, up from 5 percent the year before.”
Published By :- Shubham Agarwal
Edited By :-Â Khushi Thakur
