CHINA’S latest lockdown threatens to intensify global supply-chain disruption and push up elevated shipping rates and input costs.
For a start, restrictions imposed as part of China’s zero-COVID policy have led to a plunge in Shanghai freight traffic volume in April and early May, according to Fitch Ratings in its latest economic update.
“With fewer trucks operating and Shanghai’s port staff unable to load and unload ships at their usual pace, significant backlogs have built up at the Port of Shanghai,” the international rating agency pointed out in a non-rating action commentary.
“Much of this disruption, however, is yet to be reflected in hard global macro data although China’s overall exports slowed sharply in April.”
To recap, rising COVID-19 infections in Shanghai led to a lockdown in late March with authorities implementing mass testing, confinement of many to homes, and transport restrictions.
As supply-chain disruptions persist, container freight rates could remain elevated or increase, according to Fitch Ratings.
“With Shanghai handling around a fifth of China’s port volume and China accounting for 15% of world merchandise exports, shortages of manufactured goods could intensify, adding to existing global inflationary pressures,” noted the international rating agency.
“This channel is likely to outweigh the effect of slower growth in China on global inflation through a weakening of commodity demand and prices.”
The Shanghai lockdown comes at a time when there are few signs of improvement in global goods shortages including reported rising lead times for semiconductor deliveries.
Even before the latest lockdown in China, the time taken to transport freight from Asia to the US West Coast was twice as long as it was at the start of the pandemic while shipping rates are six times higher than they were in early 2020.
Congestion at US West Coast ports has eased in recent months but this could prove temporary.
“The container backlog in Shanghai port eventually will make its way to US West Coast ports, likely causing congestion in the summer months,” projected Fitch Ratings. “But with US ports struggling with staffing shortages and constraints on distribution channels, supply-chain disruptions are unlikely to be resolved rapidly.” – May 11, 2022
Main photo credit: CBS News
