China Supply Problems

A massive lockdown in Shanghai, China is creating new supply chain problems.

The Asian city is reporting 25,000 new cases each day, according to state media. Officials have begun easing the lockdown for some areas despite the high case numbers, but the majority of the city remains immobilized, leaving trucking at a standstill.

This isn't enough to combat the rising cost of materials connected to Shanghai manufacturing. Economists and analysts say the massive lockdown will adversely affect the global supply chains very soon.

Truck drivers trying to get into Shanghai's port, airport and factories must show negative COVID-19 test results. The protocol is making the ability to get goods moved virtually impossible.

"Trucking is the lifeblood of the first and last mile," said Derek Bushaw, head of network operations, Asia, at Flexport. "The first mile for the factories is that inbound delivery of components, and whether those are imported or domestically sourced, that's still a challenge because it depends on trucking."

Some shipping companies are reporting a 30% drop in shipments due to a lack of trucks able to roll. The lack of trucks has many companies diverting cargo away from Shanghai.

Officials believe if the outbreak is contained and the lockdown lifted before the end of April, shipping can get back on track by the end of the quarter. If not, economists say commodity prices will rise substantially.

The uncertainty is having the same affect Covid did when it first started cropping up in the Spring of 2020. Contractors are proceeding cautiously with projects. Some are refusing to start work, while others are putting work on hold.

Other companies facing future hits are those depending on electronics like Tesla and Apple, as many electronic suppliers are in and around Shanghai.

With officials adamant about sticking to China's zero-COVID policy, lockdowns and the disruptions are likely to continue.

"We have a real challenge in planning, because as soon as you get out of trouble in one area, a few weeks later you're into trouble in another area," Bushaw said. "The biggest challenge is uncertainty and not knowing ... when these challenges will come to an end."