Shanghai port bears witness to supply chain crisis, unreliability of China

Amid a devastating wave of Covid on 27 March, authorities began a snap lockdown in Shanghai, affecting the city’s approximately 26 million residents who are experiencing “large scale” Covid-19 infections in their midst. Since that day, stories of desperate citizens struggling to find food have led to rare demonstrations in the city — and viral videos of residents screaming from their high-rise apartments to share their frustration, a report on Fortune says.

Notwithstanding the outrage, President Xi Jinping said last week that China’s zero-Covid policy “cannot be relaxed.” That’s bad news for supply chains that are already feeling the stress of the Shanghai lockdown.

While authorities have stepped up their efforts, permitting some production at factories around the city to continue, supply chains in the region are in limbo. At the Shanghai port, the largest container port in the world, ships are backed up, waiting to unload their cargo.

This graph from the maritime and aviation intelligence firm VesselsValue puts the depth of the crisis into perspective.

The graph shows the staggering number of ships waiting to load or discharge their cargo in Shanghai compared to historical averages. Rodrigo Zeidan, an associate professor of business and finance at NYU Shanghai who shared the graph, said he believes the Shanghai port supply crunch will lead to lasting inflation when it comes to tradable goods.

While the port has remained functional throughout the lockdown, unloading ships has been a challenge due to strict restrictions that have put 90% of the trucks supporting import and export deliveries out of action. That’s led thousands of shipping containers to stack up at the port in a nightmare similar to what the West Coast of the US saw in 2021.

The affected supply chains in Shanghai and other cities have experts like Zeidan sounding the alarm on the potential effects on the global economy and inflation. In a 14 April report from the investment bank Bernstein, analysts warned that the macro impact of China lockdowns “could be quite high” and was not adequately priced into economic expectations.

Economists fear the worst too. “The more severe it gets, the more the impacts will be pronounced,” Liang Yan, an economics professor at Willamette University, told the South China Morning Post this week. “These transport and supply-chain disruptions are going to feed into the global supply-chain problem and the US.’”

The restrictions in Shanghai have made leading investment banks reassess their outlooks for economic growth in China. UBS now sees Chinese GDP growing by just 4.2% this year, down from 5%, amid economic disruptions from lockdowns.

“Mobility curbs, transportation bottlenecks, and a continuation of current strict COVID-19 policy pose near-term risks to growth, and we have downgraded our 2022 GDP growth forecasts as a result,” Mark Haefele, UBS’ Global Wealth Management chief investment officer, wrote in a note yesterday.