Dozens of cities in China are currently under partial or full lockdown after the number of coronavirus cases in the country rose again due to the spread of the Omicron variant. The situation threatens the Chinese authorities’ controversial “Covid Zero” strategy.
With a population of 25 million and a vital weight to the country’s economy, the city of Shanghai is suffering the worst Covid wave since the pandemic began more than two years ago in Wuhan.
The Chinese metropolis is not only a global financial center, but also one of the most important freight ports for international trade. For the past decade it has been the largest port in the world in terms of cargo throughput. In 2021, the port of Shanghai accounted for 17% of China’s container traffic and 27% of exports.
However, the restrictions the city faces make it difficult for trucks to arrive to take goods to other locations or to distribute them to nearby factories. Many industries such as Volkswagen and Tesla had to shut down their activities.
“The restrictions mainly affect the ports’ entry and exit roads, resulting in container congestion and a 30% reduction in productivity,” explains Mike Kerley, investment manager at Janus Henderson.
Added to this is the lack of dock workers to process the documents that ships need to unload their goods or carry out the departure inspection.
Now boats are also queuing on the shore and in the canals around the harbor, waiting for the green light to moor.
Data from consulting firm VesselsValue shows how waiting times for tankers, bulk carriers and cargo ships have increased.
Another concern is that thousands of containers are piling up at the port, once again putting the global supply chain at risk, just as analysts were confident in their recovery from the pandemic.
While the port remains operational, it is becoming increasingly congested.
The European Union Chamber of Commerce estimated that 40 to 50% fewer trucks were available in Shanghai and that less than 30% of Shanghai’s workforce is able to return to work. The measures imposed by China in this new wave of Covid require anyone diagnosed with the disease to be quarantined, even if they are not showing symptoms.
A large part is quarantined in central facilities, where many people complain of poor conditions.
2 of 2 The Port of Shanghai is the world’s largest cargo hub — Photo: Getty Images via BBC
The Port of Shanghai is the world’s largest port for cargo handling — Photo: Getty Images via BBC
Washing machines, vacuum cleaners and clothes
The main products exported from Shanghai include washing machines, vacuum cleaners, solar panels, electronic components and textiles.
“Temporary shortages in these products may be evident as exports via Shanghai account for 3050% of total Chinese exports of these products,” said Janus Henderson’s Kerley.
Ocean Network Express, a Japanese shipping company, has warned customers that containers are piling up at the port of Shanghai.
“The situation has not improved since our last update on April 6th. Road traffic remains limited and terminals are still congested, while cold zone connection capacity remains very tight,” the company said in a statement.
The world’s largest shipping company, Maersk, also issued a statement this week, saying “several ships will skip the port of Shanghai on their routes” due to a shortage of available container space.
The global consequences are tight supply chains, sluggish imports and rising inflation.
“There are major concerns that it will affect exports and the inflationary impact on the world, including Latin America, which is a key trading partner for China,” said Alicia GarcíaHerrero, chief economist for AsiaPacific at investment bank Natixis. . .
“Since the capacity of the port is neither the same as in March nor in February, it will take some time for all this to be resolved. Even if the city’s lockdown ends tomorrow, there is a buildup of capacity that cannot be resolved quickly,” he told BBC News Mundo, the BBC’s Spanish service Rodrigo Zeidan, a professor of economics and finance at NYU Shanghai
“Inflation will continue for a while. Prices for many commodities will take some time to stabilize,” adds Zeidan. Bank of America analysts believe the worst impact will likely be seen in late April.
“While authorities have already noticed the issues and taken action over the past few days, it is likely that the (supply chain) disruptions will spread around the world within 3 to 6 weeks and last at least until the end of the second quarter .” The bank announced this in a statement.
What will happen in Latin America
The impact in Latin America could be twofold, believes Zeidán.
First, in terms of economic productivity, he says, because even if there is demand from China for all the commodities it imports from Latin America, supplies will not be easy to come by.
“It’s already happening. Shipping costs have been insanely high for a long time and prices are rising.”
And secondly, inflation will rise a little more.
However, some of the experts interviewed believe the restrictions will not last long given the port of Shanghai’s importance to Chinese trade. They say the Chinese government will most likely do its best to return to normalcy as soon as possible.
For Zeidan, the situation should not improve until midMay.
Shanghai imposes lockdown because of Covid, and 25 million people are kept at home