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As operations in shanghai halt, the concerns for the global supply chain continue to rise

As operations in shanghai halt, the concerns for the global supply chain continue to rise

Ever since the pandemic started, China was one of the first countries that recovered from the damages and seem to stabilize the situation before everyone else. But unfortunately, the situation in the last few months has drastically changed in China, especially in Shanghai.

After implementing a successful strategy of “Zero-Covid”, China finds itself once again in a challenging state. China’s metropolitan city Shanghai is facing a massive lockdown that creates huge uncertainty in the supply chain.

During this month, the number of cases has risen to 26,000 a day! that’s a huge number considering the previous situation in China which was quite a under control. Resources are now reporting that some areas of the city are starting to open despite the increasing number of cases, but the city at large remains under lockdown.

The closure of Shanghai has brought major disruption tothe supply chain, the costs are continuously on the rise and transportation of goods has become extremely difficult, and all the trucking operations are almost on hold. The disruption in supplies in the factories is slowing down the workflow, and as the numbers increase, the experts and analysts are getting more and more concerned about the persistence of the global supply chain. 

INCREASING PROBLEMS IN THE SUPPLY CHAIN

As the covid is spreading in Shanghai, it is getting more difficult for truck drivers to maneuver through the city. More checkpoints are being positioned verifying the covid-tests of the drivers and they need to get tested every 24 hours which is really frantic. Conducting these many tests without proper logistics is turning out to be more chaotic. 

Head of Network Operations at Flexport, Derek Bushaw stated that “Trucking is the lifeblood of the first and last mile”, he further added that“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.”

There’s been a huge decline in the efficiency of shipping companies in the past month, the efficiency has dropped to over 30%because of the deficiency of trucking transport and logistics, which is detrimental to the global supply chain. The hindrances within the city of Shanghai are forcing a lot of cargo companies to end their operations and leave the city.

To sustain the production, Shanghai has implemented a “closed-loop system” which means that the workers spend all day in the factories and never leave the place. It is working so far but experts predict that they’ll eventuallyrun out of supplies and they’ll have to open up the city for imports and supplies.

Massive manufacturing plants such as Apple’s supplier Pegatron have announced that it has paused their operations in Shanghai due to harsh Covid-19 restrictions. Well, it is expected that the restrictions will ease up by the end of this month. Experts believe that if the disruptions continue till the end of this month, we’ll see a major increase in the price of commodities. 

INSTABILITY IS THE BIGGEST THREAT

The biggest question here is that what guarantees the prevention of another lockdown? And if we’re being honest there’s no certain answer. Head of APAC Strategy at FAO Global, Cameron Johnson said that regardless of the future operations, the current lockdown will cause the product prices to rise at least 4-5 percent. 

Alongside Shanghai, the neighboring city of Kunshan is also facing strict lockdowns and restrictions, which is also damaging the total output and productivity of several factories. Similar to Shanghai, Kunshan is home to gigantic automotive and electronic suppliers that provide supplies to companies such as Apple and Tesla. So, the consequences will be worldwide and drastic.

Jena Santoro (Manager of intelligence solutions for the Americas at Everstream Analytics) believes that this is just the starting of this outbreak, she further added that this situation will only elevate regardless of the lockdown, and it’ll most likely be the next big covid-19 situation.

CONCLUSION

The biggest issue here is that the future is uncertain, and planners can’t formulate a strategy. We can only wait and hope that the situation gets better and clearer as time progresses because otherwise, it doesn’t look that good for the production houses in Shanghai and Kunshan.

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