Covid-19 flareups in China affecting supply chains

A number of cities in China, including Beijing, Hong Kong, Shenzhen, Shanghai, and Qingdao, are currently dealing with Covid-19 flareups.

The country has enacted strict border controls, extensive testing, and lockdowns, whilst also using measures to ensure stable operations for businesses.

The ripples of Covid

Experts worry the current Covid flareups across China may have an adverse effect on supply chains.

Whilst the current numbers remain low compared to countries elsewhere in the world, China is increasing its efforts to mitigate the current situation. The more than 7,000 cases that have been registered in the first two weeks of March make this the worst covid flareup in the country since the start of the pandemic, two years ago.

Cases growing in Shanghai

Shanghai, the nation’s largest city, has shut down most schools and public parks as covid cases rise. Though the city has ruled out imposing a broad lockdown for now, employees in the financial and business district are asked to work from home. Calls for more flexible work arrangements hope to ensure that the stock exchange and financial district can continue to operate efficiently.

As is the case in many of the areas affected by covid currently, local government is doing its utmost to ensure stable working environments for businesses so supply chain impacts are minimally affected, whilst also caring for citizens and working to hamper further spreading.

Capacity lowered in Hong Kong

Supply chains are already pressed in Hong Kong, with lowered truck driver capacity due to positive Covid tests. Forwarders estimate a cut of at least 70% trucking capacity, which in turn is having a domino effect on the rest of the supply chain. Experts note that the local trucking capacity to and from the rest of China has been severely impacted. There is a worry that longer delivery times and a possible rise in transport costs could await.

Air freight is also affected in Hong Kong. Due to the lengthy cross-border process, cargo is delayed in reaching the next component of their supply chain, air freight.

In relation to this, some air freighters have decided to delay the resumption of their operations until IATA summer schedule, such as Virgin Atlantic. Cathay Pacific Airways LTD, has cancelled hundreds of flights, due to the government’s choice to scrap aircrew quarantine exemptions, resulting in lowered labour capacity and lowered cargo movement.

Shenzhen, Dongguan, and Changchun

Shenzhen, a tech and finance hub adjacent to Hong Kong in the south, has also been dealing with cases. Its earlier lockdown has been lifted.

Whilst ports in Shenzhen (Yantian and Chiwan) are open and working as normal, we do foresee vessel waiting time will increase in Yantian and Chiwan ports.

Dongguan, another key manufacturing hub in the southern province of Guangdong, is also currently experiencing covid cases, with factories in some areas closed due to Covid flareups.

Changchun, an important industrial base with a particular focus on the automotive sector, is also feeling the pressure with factories in some areas closing due to Covid flareups. Residents are required to stay home with only one family member permitted out to buy necessities every two days. Auto manufacturing plants are unable to work completely without human labour, resulting in delays in production.

Effects on supply chains

Supply chains are finely tuned, sensitive ecosystems, where one ripple can be felt throughout the chain. Whilst manufacturing also takes place in other parts of the country, these delays will still affect output, though not drastically.

Maersk is closely monitoring the situation in China, and business contingency plans have been activated. We have been notified that all ports and terminals in Shenzhen (Yantian and Chiwan) are currently working as normal, including vessel operations, yard handling and gate-in-and-out. However, we foresee vessel waiting time will increase in these ports.

We understand the repercussions a situation like this may have on your supply chain. We continue to follow the situation closely on the ground and endeavour to keep you informed throughout it. If you have any questions, please reach out to your local Maersk professional for more information.