When will Shanghai come out of lockdown?

Shanghai has been on Covid lockdown for the past eight weeks and was expected to start reopening on May 20. But that day passed and only minor adjustments were made. Most of the 41 million people in the metro Shanghai region remain confined to their residences in complete or partial lockdown.

Unlike lockdowns in America, the Chinese people that are in complete lockdown are not allowed out of their apartments for any reason, including going for a walk, going to the grocery store, or running other errands. Food is delivered by the government to your doorstep. (Can you imagine what government-selected meals look like?)

Shanghai metro area is one of the largest manufacturing centers in China, with heavy concentrations of automotive and electronics suppliers. It is home to the largest container port in the world and a major airport that serves inbound and outbound air cargo.
Now Shanghai’s major ports are only operating at partial capacity, and due to the restricted operations and a lack of drivers available to pull containers in and out of the ports, only a fraction of the normal cargo is moving. Most factories are also closed or only partially operating. Workers are confined to the factory and are not allowed to leave. They work, eat, and sleep on site.

Determined not to spread Covid, the Chinese government’s Zero-Covid policy dictates that if you test positive for Covid, you are taken away to a Covid detention center with others who are sick or have tested positive. You are not permitted to recover at home.

As bleak as this picture is, consider the effect on global supply chains that could dwarf previous disruptions at the start of the pandemic. Western buyers are struggling to get finished goods and needed parts from the region. Either the factories aren’t producing or the cargo isn’t moving.

Factories in the Shanghai region that supply other factories throughout China are now causing shortages of production parts. Southern ports in Fuzhou, Shenzhen, and Hong Kong are backlogged. Shortages are affecting consumer goods, too. Apple faces a hit of up to $8 billion in the current quarter from supply chain shortages and factory shutdowns in China.

Despite the pandemic, geopolitics, trade sanctions, and penalty tariffs, U.S. imports from China were higher than ever in 2021 due to increases in consumer spending, and are likely to grow throughout 2022. Americans keep buying goods from China and that is adding to the increased demand for cargo shipments.
Sooner or later, the restrictions will be lifted and Shanghai activity will return to normal. But when it does, a major amount of freight that’s been in the queue to leave China will now be headed to the West Coast ports, and the dreaded backlog of ships waiting to be unloaded in Oakland and LA/Long Beach and other ports. These kinds of mismatches in supply and demand for freight movements will continue for many months, even years.

Further complications from the War on Ukraine will soon become evident, too. For example, neon is a gas that is used to manufacture semiconductors and is primarily sourced from Ukraine. The current neon supply is expected to last three months as production in Ukraine has been halted and has no expected restart date. Shortages are expected to extend beyond 2023, so it is likely we will have neon shortages that may delay or shut down semiconductor production – on top of our already constrained semiconductor supply. Both industrial goods and consumer goods will be affected. Just try to buy a new car without semiconductors – global supply chains, from raw materials to finished consumer goods are in jeopardy again.

What’s going on in the Shanghai megalopolis region now could have many times the effect of previous lockdowns. Coupled with the lockdowns in Shanghai and now Beijing, and the war on Ukraine, global supply chains are again in peril. This situation isn’t likely to get any better, any time soon.

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