Date: Wednesday, April 20, 2022
Chinese officials on Monday issued new guidelines to normalize industrial production and logistics flows, part of an effort to minimize the impact of strict lockdown measures in Shanghai. Under rules endorsed by the central government, localities will self-select specific companies in critical industries that can restart operations.
A statement from the Ministry of Industry and Information Technology (MIIT) was one of the first times the government has acknowledged the three-week lockdown of Shanghai to squash COVID is having negative economic repercussions. Shanghai reported 27,613 positive COVID cases on Tuesday, including more than 3,000 new infections.
Various economists have forecast that shutting down Shanghai for so long could slash China’s monthly economic growth by several points. Spanish financial services firm BBVA last week estimated the lockdown could reduce the official GDP target of 5.5% by 1 or 2 points.
“Efforts must be made to break through the blocking points of logistics and transportation, promote the resumption of work and production in areas greatly affected by the epidemic as soon as possible, focus on ensuring the smooth circulation of key industrial and supply chains, vigorously support small and medium-sized enterprises, and promote the smooth operation of the industrial economy,” the MIIT said Tuesday.
Shanghai city officials responded by releasing a “white list” of more than 660 enterprises, many in the automotive, semiconductor, consumer electronics and biopharma sectors, permitted to operate if workers are kept in a “bubble” environment. The list includes state-owned automaker SAIC Motor Corp., Volkswagen and Tesla’s electric car factory.
Some plants continued to function at reduced capacity during the lockdown by operating “closed-loop” systems with workers living within the campus instead of returning home. Now the government-picked firms also must keep employees at factories and warehouses to avoid contact with the public and reduce the risk of transmission.
The MIIT has set up a digital platform designed to coordinate the phased resumption of factory work and logistics operations and provide lists of truck drivers with green health permits and negative COVID tests who are allowed to move around Shanghai.
China logistics challenges remain
The reopening of manufacturing and freight transportation in cities subject to mass sequestration could ease the growing backlog of import and export shipments that has created another huge chokepoint for global supply chains. Whether there will be near-term logistics relief likely will depend on how the new work rules for factories and transport are implemented.
A major challenge for factories is getting raw materials and components needed to maintain production while access to the ports is sharply reduced and many supplies are stuck offshore on waiting vessels.
The Tesla (NASDAQ: TSLA) plant opened with only one of its two shifts, cutting productivity in half, according to a tweet from Ming-Chi Kuo, an analyst at TF International Securities. At that output, Tesla has about 2.5 weeks of inventory and can produce 25,000 to 30,000 units per month, down significantly from pre-crisis levels. Kuo said Tesla’s hourly work rate won’t return to normal until mid-May, at the earliest.
Chicago-based AIT Worldwide Logistics said in a customer update Tuesday that many highways in Zhejiang province have reopened, but booking trucks for less-than-containerload and full containers remains difficult.
While the Port of Shanghai continues to operate, vessel loading has decreased 20% to 30%, and several carriers, including Maersk, ONE and 2M are currently not calling on the stop, it said.
The strict COVID measures continue to limit freight operations at Chinese airports too.
Zhengzhou Xinzheng International Airport is now allowing trucks to enter and leave the terminal if they adhere to all quarantine protocols. On Saturday, Guangzhou Baiyun International Airport suspended all import operations until further notice. And import operations at Shenzhen International Airport remain delayed, with trucks waiting five to seven hours to retrieve freight from the terminal, AIT Worldwide reported.
Analysts expect the buildup of deferred cargo to take time to draw down. They worry that when the wave of pent-up shipments reaches U.S. ports, it will reignite congestion on a scale similar to last year when nearly 100 containerships were parked in the ocean outside Los Angeles and Long Beach.