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Editor’s note: This story has been updated.
Just as global trade is coping with the war in Ukraine, new Covid outbreaks in the major Chinese export hubs of Shanghai and Shenzhen have the supply chain bracing for the latest in a too-long series of shocks. Foxconn, one of Apple’s biggest suppliers, has suspended operations in Shenzhen as China locks down the technology hub and several other regions to contain the country’s worst Covid outbreak in two years.
Seaports remain open, according to cargo marketplace Frieghtos, but factories and warehouses have closed until March 20. So far, Shanghai has not entered a full lockdown, though new rules may slow trucking operations, and international passenger flights have been canceled for the next six weeks, which will impact cargo flows and rates.
Ocean freight rates to the U.S. and Europe have actually dipped, Freightos reports, and China’s manufacturing lull may enable international ports to clear backlog. However, tight capacity and rising fuel costs resulting from the war had already been pushing air cargo rates up. Shanghai-U.S. East Coast rates have climbed by 42 percent and rates from Europe to Asia are also rising. Prices from Frankfurt, for example, increased 17 percent to Shanghai and 110 percent to Hong Kong.
But the pause in manufacturing will likely cause a surge in freight demand once factories reopen, and the degree of impact on ocean logistics will depend on how long the lockdown actually lasts and the extent to which the ports are affected.
Business consultancy BSI believes the new Shenzhen lockdown will hit supply chains harder than the Ever Given Suez Canal disruption. While the port will remain open, it will be closed for cargo operations, further disrupting trade. The lockdown will also close the Shanghai Pudoong Airport (PVG) to inbound flights, further reducing the capacity for cargo on flights.
The Shenzhen lockdown will also impact manufacturers in the region by causing stoppages in factories and production, said BSI in a statement. The lockdown will disrupt operations at a supplier for a global technology company, a semiconductor manufacturer and automobile plants.
The latest indicators suggest that transpacific demand remains strong, and current ocean rates — although high — are about 20 percent below the records set during the height of peak season in September, according to Freightos. So, depending on the extent of the current disruption, it could be enough to send transpacific prices up once again, though perhaps not to the same degree as last spring.
Asia-Europe demand, however, appears to be waning. With rising costs and inflation made worse by the war, and some additional ocean capacity as carriers boycott Russian cargo, ocean rates have fallen more than 8 percent since the start of the year. So the impact of closures in China may not result in a spike, but could be enough to keep Asia-Europe rates from falling or drive a more moderate increase than last time.
BSI recommends companies review their supplier base in southern China; understand their buffer stocks for critical products and components; and evaluate the possibility of shifting some production to manufacturers in other locations.
China is sticking to its zero-Covid strategy, even as other nations reopen. Shenzhen, which borders Hong Kong, is home to Chinese tech giants like Tencent and Huawei. Foxconn has two major campuses in Shenzhen. The Taiwanese company has “adjusted” its production line to other sites to “minimize the potential impact” from the disruption but didn’t provide specifics.
