Supply chain issues China: Problem exacerbated by cargo ship jamming off Shanghai port

The number of cargo ships waiting outside the port of Shanghai has increased fivefold due to challenges arising from the city’s lockdown.

Australian consumers could face higher prices, longer delivery times and a tight supply as the lockdown in Shanghai paralyzes the world’s busiest port.

Strict testing protocols, a workforce stifled by Covid-19 infections and health checkpoints are reportedly throwing a spanner in the works at the Port of Shanghai, which according to the World Shipping Council is the world’s busiest port.

Bansi Madhavani, senior economist at ANZ Research, said the lockdown in Shanghai was “a major setback for global supply chains already strained by geopolitical tensions”.

“Additional activities such as warehousing and staffing will be affected and cause delays,” he said.

China is currently experiencing a spread of Covid-19 on a scale not seen since its original outbreak in Wuhan in early 2020, and this time it’s focused on Shanghai.

The nation reported 3,316 new cases today.

The Chinese government has imposed a strict lockdown and mandatory testing system on the city of 26.3 million, according to a 2019 census. That’s more than Australia’s total population at 25.9 million, according to the latest estimate from the Australian Bureau of Statistics.

VesselsValue, a global logistics data provider, said the number of vessels waiting at the port of Shanghai has increased almost fivefold in three weeks.

This development brings misery to an already unhinged global supply chain. The Russian invasion of Ukraine has diverted global shipping and trade and sent fuel prices into a tailspin. Meanwhile, global ship demand has not abated and ship prices have continued to rise and are now almost five times pre-pandemic prices.

Shanghai is an important port in the global supply chain. Shanghai handled 43.5 million freight containers in 2020, more than triple the throughput of Rotterdam, Netherlands, the busiest port outside of Asia.

problems in the supply chain

This is inflicting more suffering than we have seen in decades on weary consumers who have already experienced shocks in the global supply chain.

The pandemic has thrown the spotlight on numerous shortcomings in the global supply chain, with one issue triggering another and the other.

At the start of the pandemic, people retreated to their homes and turned to the internet for their shopping, fingers itching with boredom and wallets fatter from government incentives and not booking annual family vacations.

Money has also never been cheaper as central banks cut interest rates to near zero.

This would normally have stretched the supply lines thin, but the situation was made worse by the fact that many manufacturers were unable to ramp up to meet the unexpected recovery in demand. Instead, many had expected the opposite — that consumers would tighten their wallets, as they did a decade earlier during the global financial crisis.

However, consumer demand picked up again. Of course, that meant everything else had to be booted back up, and fast.

But that is easier said than done. Many modern manufacturing processes are only part of a complex network of value-adding activities. For example, computer chips are incredibly delicate to manufacture, and many manufacturing centers had closed their doors when the pandemic began. They can take weeks to ramp up again, assuming their input channels are running smoothly. Prices have not yet stabilized.

This had an impact not only on computer parts, but also on modern cars that require chips, which then spilled over into the used car and rental car markets.

Adding to these disruptions, the cargo shipping industry – the bedrock of modern global trade – has struggled to keep up in the new environment of unexpected demand patterns and scattered, ever-changing Covid-19 restrictions in various ports.

Early forecasts said global shipping would normalize by the end of 2022, but stresses like the Shanghai lockdown will most likely push that horizon back.

Dynamic null covid

Meanwhile, Beijing insists its zero-Covid policy of tough lockdowns, mass testing and lengthy quarantines has averted deaths and the public health crises that have gripped much of the rest of the world.

However, some have expressed doubts about official figures in a country whose large elderly population has low immunization coverage. Health officials in Shanghai on Sunday found that less than two-thirds of residents over 60 had received two Covid shots and less than 40 percent had a booster.

Unconfirmed social media posts have also reported unreported deaths – usually before they were taken down from the web. Hong Kong, meanwhile, has attributed nearly 9,000 deaths to Covid-19 since the Omicron variant surged there in January.

The Shanghai Municipal Health Commission on Tuesday said the seven victims were between the ages of 60 and 101 and all had underlying conditions including heart disease and diabetes.

The patients “became seriously ill upon admission to hospital and died after ineffective rescue efforts, with the direct cause of death being underlying diseases,” the commission said.

More than 20,000 new Covid cases were also reported, the vast majority of which were asymptomatic.

Many of Shanghai’s 25 million residents have been confined to their homes since March as the daily caseload has surpassed 25,000 — a modest number by global standards but virtually unknown in China.

Many residents have flooded social media with complaints about food shortages, spartan quarantine conditions and tough enforcement, circulating footage of rare protests faster than government censorship can erase them.

The country’s zero-tolerance approach to Covid had largely slowed new cases after the virus first emerged in the central Chinese city of Wuhan in late 2019.

But officials have struggled in recent weeks to contain cases spanning multiple regions, largely due to the fast-spreading Omicron variant.

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