Shanghai Factory Closures Mount as Covid-19 Lockdowns Hit Supply Chains

Date: Tuesday, April 13, 2022
Source: The Wall Street Journal

More factories in and around Shanghai, including two run by an Apple Inc. AAPL +1.84% supplier, are halting production because of extended Covid-19 lockdowns in the region, adding to pressure on the global supply chain.

Analysts said Shanghai-area manufacturers were having more trouble getting parts delivered because China’s restrictions on movement are making it difficult for trucks to enter the region. That means some factories can’t operate normally even if they manage to keep workers on the job.

Pegatron Corp. 4938 0.70% , a major assembler of Apple products, said Tuesday it has temporarily suspended production at factories in Shanghai and nearby Jiangsu province in compliance with local government requirements.

Taiwan-based Pegatron makes the Apple iPhone and other products in Shanghai and Jiangsu. It is the second-largest assembler of iPhones after Foxconn Technology Group.

German auto parts and chip supplier Robert Bosch GmbH said Tuesday it has suspended production at plants in Shanghai and the northern city of Changchun, following local pandemic protocol. Two other factories in Shanghai and the nearby city of Taicang are still operating in a bubble-like environment that keeps workers on factory campuses.

A Bosch spokeswoman said the company is “doing everything we can to maintain the supply chains as much as possible.”

Production at many factories in the Shanghai area has been disrupted since March because of the Chinese government’s stringent measures to block the spread of Covid-19. Tesla Inc. suspended work at its factory in Shanghai on March 28.

China’s lockdowns were intended to stifle Covid-19 and pave the way for a resumption of economic activity. Instead, the disease keeps spreading and the hit to the local and global economies keeps getting bigger.

Companies like Pegatron were initially able to continue production when the Shanghai government implemented lockdown measures in late March because the government allowed some manufacturers to keep operating in bubble-like conditions.

On Tuesday, however, Pegatron said it had to shut down the Shanghai and Jiangsu factories. The company said it was cooperating with the local government to resume operations as soon as possible but didn’t give a specific target date.

Truck drivers have been required to show a negative result from a coronavirus test taken within 48 hours if they want to enter Shanghai, and some drivers are avoiding transporting goods through Shanghai altogether, fearful of ending up in quarantine.

Many electronic makers in Shanghai and nearby regions are relying on on-site inventory and struggling to keep up production because they can’t get deliveries of parts such as semiconductors, battery modules and display panels, Taiwan-based research firm TrendForce said in a report Tuesday.

One component hit by the logistics mess is known as a multilayer ceramic capacitor, sometimes called the rice of electronics because it is a staple part in all kinds of products from smartphones to electric vehicles.

A typical supply chain in China involves MLCCs made in other parts of the country getting shipped to Shanghai and nearby provinces, where companies that design and manufacture electronics for big consumer brands like Apple are based. But TrendForce said suppliers were having trouble delivering the MLCCs where they are needed.

An official at Taiwan’s finance regulator said Monday at a parliamentary meeting that some 161 Taiwan-listed companies with operations in Shanghai and nearby Kunshan have had to halt production.

Last week, the chief executive of Chinese e-commerce giant JD.com Inc. said the company was having trouble delivering necessities to people in Shanghai because of rigid and inconsistent rules for truck drivers and other logistics workers, according to a screenshot of messages he sent on messaging service WeChat, which was viewed by The Wall Street Journal. JD.com didn’t respond to a request for comment.

Officials say they are working to address the problem. At a news conference Sunday hosted by the Shanghai government, e-commerce executives said they were adding thousands of delivery workers.

On Monday, the State Council, China’s cabinet, asked for unobstructed delivery of energy, raw materials and other supplies needed for production. Local authorities were told not to block highways, air and sea travel lanes without the proper authorization, and not to impose unnecessary travel restrictions on trucks.

 

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