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Continuing Covid Lockdowns in China and The Effects on the Global Supply Chains

China covid lockdowns in a drawn example

For most people in the U.S., strict covid lockdowns are a nightmarish memory of the recent past, but for 24.9 million people, it’s still very much a reality. In pursuit of their ‘zero-covid’ strategy, China has once again shut down their cities and locked people in their homes. While to the rest of the world, the concept of endless lockdowns seems rather draconian and unthinkable, the Chinese government has doubled down on these policies. 

In addition to harming its population and its own economy, these governmental policies also cause reverberations around the world. Part of those reverberations includes the effects on the global supply chain. 

Let’s look at the specifics. 

The Continous Covid Lockdows and The Effects on the Supply Chain 

As the world slowly returns to normal in America, other parts of the world continue to struggle under the covid threat and are a long way away from normalcy. Recent reports out of China, for example, are slowly painting the horrid picture of a population stuck in their homes without the ability to work and —at times— feed their family. 

Chinese lockdowns are much different than what Americans might remember as lockdowns. Even the strictest period in American covid policy did not compare to the Chinese government’s enforcement. In China, residents can be subjected to much more oppressive actions, including the complete inability to leave their homes. They can’t leave for work, get food, or even receive medical care. It is keeping the population completely barricaded. 

Reports of people going hungry in Shanghai are slowly trickling into the Western media. According to some reports, government handouts of food have been somewhat unreliable. The authorities in China themselves have admitted to a food shortage as a result of a lack of planning and coordination. 

When Omicron hit Shanghai, the authorities changed course with their policies and turned to a zero covid mentality. Before that, Shanghai had comparable covid policies to the rest of the world: mask mandates and social distancing, but nothing to the level of draconian lockdowns. With the fast spread of Omicron, the government began what they called a ‘temporary pause,’ which has been extended again and again. For communities with a single new positive case, the lockdown is extended for 14 days. 

In Tesla’s factory in Shanghai, workers are practically living on-site in order to keep production going. The company is doing its best to provide sleeping bags and mattresses and designated areas for eating and entertainment. 

The External Effect 

The full consequences of the lockdowns still remain to be seen, as Western media has little access to many of the realities in China on the ground. Shanghai is where one of the world’s largest ports is located. Their Pudong airport is the world’s busiest cargo airport. The city accounts for 7.4% of China’s exports and 14.4% of imports. 

The city has one of the most essential semiconductor manufacturing centers, is the center of many auto producers, including SAIC Motor, and SAIC’s other joint companies, including Walkwages, GM, Tesla, and Ford. 

At this point, it is no secret that the United States imports a lot of goods from China. The past few years have certainly brought this idea to the forefront of people across all sectors. The United States imported about $435 billion of goods from various Chinese cities. 

The current policies are creating all kinds of stop gaps and hurdles in the city itself, where the ports are overfilling without anybody to pick up their orders or deliver them. This is despite efforts to maintain a ‘closed-loop’ system at the ports, where workers sleep and eat on-site without leaving. So when lockdowns end, a pent-up amount of orders will cripple supply chains by creating clogs in the supply lines.  

Reverberations of the Chinese Lockdowns in Europe

Many American companies have become highly dependent on Chinese goods. America is not the only country that feels the gaps in the supply chain due to Chinese policies. The European Union sent a letter to the Chinese government asking them to reconsider their stringent policies as European supplies suffer the consequences of backlogged orders. According to Freight Waves: 

  • Container volumes out of China have dropped 31%. This impacts the U.S. surface freight market. 
  • There are reportedly 300 containerships and 500 bulk ships off the coast of China
  • Backlog of orders when things open back up will create massive chaos and clogs in the supply chain

Get Professional Assistance With Exports and Imports Through a Customs Brokerage 

The world of global supply chains, imports, exports, and fluctuating markets is an ever-changing landscape. It is often affected by the policies of governments around the world and COVID lockdowns. 

A customs broker specializing in studying the changing regulations and what’s happening in the world of international trade in order to better facilitate the exchange of goods. 

Learn more. Connect with us at Cordova Brokerage. 

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What is the Bullwhip Effect in Supply Chains? Here’s How This Phenomenon Affects Trade

supply chain diagram hand drawing on chalkboard

supply chain diagram hand drawing on chalkboard

We’ve covered the complexities of the supply chains and the role of imports and exports in a highly globalized and interconnected market extensively. The vulnerabilities of the supply chain have become all too clear for people involved in every aspect of production, manufacturing, assembly, and distribution. This has led to major instability across many sectors and a profound assessment about how supply chains need to be reinforced and less dependent on imports from certain countries—at least that is the view for some. 

So in the coming months, you might be hearing a lot about the bullwhip effect in the supply chain. It’s already making the rounds. So what is this phenomenon? 

Here are the basics. 

The Interconnectedness of the Supply Chains 

The importance of uninterrupted movement and goods across all industries cannot be understated. Everything we see at the store shelves or car lots has likely undergone a long journey that possibly began in a different country, traveled across oceans, waited in a cargo ship or shipping container, went to the manufacturing plant, and then made its way—via highway and truck—to the store or dealership in which you will buy it from. 

This long journey was far more fragile than people had realized. It was the disruptions of 2020 that really cracked open some of the problems. Now that the economy is gearing back up, companies and manufacturers are running into different kinds of problems. 

How did it all begin?

A major shift in lifestyles, consumer demands, and economic conditions. For example, as the world shut down, consumer demands fluctuated towards at-home spending. This meant exercise equipment, cookware, entertainment, computers, and other personal products. 

The Bullwhip Effect Phenomenon

So there’s a lot of discussion right now about companies such as Peloton, suffering from the bullwhip effect. There’s speculation about the chip shortage and automobile manufacturing being impacted by the phenomenon as well. So what does this mean? 

The idea can be simplified as follows: 

Think of a whip. A relatively small movement of the wrist causes large waves in the movement of the whip at the other end. So, small changes in consumer demand at the retail level will cause ever-growing reverberations and fluctuations in demand at the wholesale, distributor, and manufacturing levels. 

Let’s look at an example of the Bullwhip Effect

A store sees an increase in demand for exercise equipment. As happened to Rogue Fitness at the beginning of the pandemic. The company then makes augmented decisions based on these observations, but the effects grow as it moves back into the supply chain. The amplified decisions made at the ground level easily destabilize and misalign the supply chain behind it. 

If a fitness equipment company like Rogue (for example), was used to selling 100 barbells in one month and suddenly they see a spike in demand, they will likely turn around and double their order. The company might over-correct and amplify that number and suddenly order 300. This sudden jump will have major consequences as it moves back to the supplier, manufacturer, and importer (if it applies). Hence, the bullwhip. 

The effect is magnified when there is uncertainty and/or lack of information, as there was when the pandemic began. Nobody really knew what was going to happen and some companies miscalculated, some ordered less, some more, and suddenly were faced with a strained and backlogged market.

The Microchip & Semiconductor Issue

One of the biggest concerns facing people in the trade and the domestic manufacturing business is the high dependence on microchips and semiconductors. A lot of our current consumer goods make use of these little components that are largely imported from places like Taiwan. 

These semiconductors are found in electronic devices, vehicles, computers, and other high-tech appliances. 

How is this Affecting Trade and Imports and Exports

For one, the world of international trade has certainly changed since the start of the pandemic. Countries have become a lot more stringent and the ease with which products flowed in and out has certainly been disrupted. Companies have realized that putting all of their eggs in the China or international import basket can be risky. So, some companies have gained an advantage over international importers given the backlogs at the supply chain. Products are not getting to the U.S. as swiftly as they once did. 

So this has shifted the balance in the importing numbers prior to the pandemic. Companies have started to manufacture components that were previously brought in from overseas, but that still leaves a lot of companies with material and labor shortages. 

Is Your Company Importing or Exporting Goods? Talk With an Experienced Customs Brokers

As a businessperson, you are likely watching these markets and fluctuations carefully. So while a customs broker doesn’t control the supply chain or the supply and demand of goods, we can help you with the ever-changing landscape of international trade and transporting goods across oceans. This is a complicated field as countries develop stringent paperwork and documentation requirements. 

You have enough to worry about. Leave the paperwork to us. Call Cordova Customs Brokerage today.