China’s coronavirus lockdowns could trigger ‘shock waves’ across global supply chains

Rising coronavirus cases in China, including in economic powerhouses Shenzhen and Shanghai, are stirring fears about severe disruptions to the global shipping industry and supply chain, according to industry insiders.

As the country grapples with its most severe outbreak since the initial wave in early 2020, Beijing has doubled down on its “dynamic zero-Covid strategy”, prompting local governments to impose stringent prevention measures, including lockdowns.

On Sunday, 19 out of 31 mainland provinces reported local infections, with recorded daily infections across the country reaching 2,243.

Experts have warned that strict containment efforts by local governments will weigh on cargo movement inside and out of the country.

“Lockdowns in China will further reduce capacity and cause a surge in already inflated shipping prices,” said Johannes Schlingmeier, co-founder and CEO of Container xChange.

“The shock waves will be felt across the US and America, and almost everywhere in the world.”

China’s tech hub Shenzhen in the southern province of Guangdong entered a de facto lockdown for this week, when three rounds of mass testing will be conducted.

The city – home to 17.6 million people – reported 86 infections on Sunday.

Local authorities in Shenzhen have ordered a halt to all non-essential industrial activities and public transport. Foxconn, a major Apple supplier, has already announced factory suspensions in the city.

The Port of Shenzhen, the world’s fourth busiest in terms of container throughput and a key export hub for Chinese manufactured goods, was still operating on Monday.

Jeffrey Halley, senior market analyst for the Asia-Pacific at OANDA, said if the port closed “we can throw more supply chain disruptions into the global mix”.

With roads blocked and movement restricted, land logistics are also expected to slow down, experts said.

“There will be limited ability for trucks to pass through and this impact will be seen on cargo flow, via Shenzhen,” said Akhil Nair, vice-president of global carrier management and ocean strategy at Seko Logistics.

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“We’re working on some alternatives via other south China areas for now but not sure if any further lockdowns are coming.”

In Shanghai – China’s largest city with a population of 24.9 million – local authorities have imposed lockdowns on entire neighbourhoods, closed schools and restricted traffic in and out of the metropolis.

The Port of Shanghai, which is the world’s largest in terms of container throughput, is still operating as usual.

Last May, the Yantian Terminal, a key part of Shenzhen port, was put into a week-long lockdown after workers tested positive for coronavirus, which caused massive delays and backlogs in the global shipping industry.

The repercussions of another port lockdown on supply chains and the cascading effects on inventories would be “phenomenal”, said Aditya Modi, director of Globus Transitos, a logistics and supply chain company.

“When Yantian terminal was locked down last year for seven days it took the terminal three weeks after resumption to get back to normal routine,” Modi said on Monday in a LinkedIn post.

“It was marked by huge delays, voyage cancellations resulting in backlogs and final resultant being freight increases to match the demand.”

The supply chain industry was on the road to recovery this year after two years of pandemic-related setbacks.

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But Russia’s invasion of Ukraine and lockdowns in China will only cause the situation to deteriorate, according to a report from Container xChange on Monday.

The war in Ukraine has forced rail and air transport on the Asia-Europe route to shift to ocean freight, which is already seeing congestion and insufficient capacity.

“Adding on top of this, China’s lockdowns will be nothing less than a major shock wave to an already crippled supply chain,” the report said.

“The supply chain must prepare for another turmoil in the coming months, impeding the flow of container movement as importers worldwide prepare for the coming peak season later this year.”