The New China Shutdowns: Is The Ship About to Hit the Fan Again?

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If you thought product shortages, delayed shipments and rising prices were starting to level off, think again: the latest outbreak of Covid in China and the subsequent shutdowns of entire regions could make things even worse.

As with anything out of China, getting accurate information can sometimes be tricky but it appears that a new wave of Covid outbreaks in the country – particularly in key export areas in the south – is causing the zero-tolerance government of President Xi to close down cities, factories and perhaps ports. Reports are sometimes contradictory with some news suggesting these shutdowns are starting to ease up but there has clearly been another disruption in the supply chain export pipeline…just when American importers can least afford it.

Reports in several media, including a story in Fast Company, say lockdowns began last week in Shenzhen and elsewhere in the southern province of Guangdong (still remembered as Canton province to those of a certain age), closing many factories and restricting travel in the area. There have also been additional reports of scattered lockdowns elsewhere in the country, including in the north where Shanghai is located.

Southern China is a big hub for technology products, including those from Apple, but also supplies a wide variety of home and apparel goods. The northern part of the country, centered on Shanghai, is more about general consumer goods. China is generally considered the single largest source for products intended for the American market.

Fast Company said some factories have already restarted production but under reduced capacity limits. President Xi has hinted in recent statements that the country’s drastic approach to controlling Covid outbreaks could be adjusted given the heavy toll it’s taken on both China’s economy and its people. But certainly this has been a blip…at least… in production.

An American importer, who has been working in China for decades and declined to be identified for this story, said he normally wakes up every morning with messages from his Chinese factories updating order statuses and communicating other details on ongoing business. This week, he said, there have been no daily messages and his inquiries to his Chinese trading partners have suggested their production facilities are closed for the time being.

How long and how widespread these shutdowns will be is, of course, unknown. While they have the potential to help work down the backlog of goods in ports on both sides of the Pacific, they could produce a window where no shipments are arriving, further exacerbating the inventory issues for American importers and retailers…and ultimately the consumer who will be trying to buy all of these potentially non-existent products.

Fast Company quotes Avi Greengart, president and lead analyst from Techsponential, which seems to reflect the general mood about this latest episode in the ongoing global trade picture: “It’s another shock to the supply chain, which has gotten almost used to new shocks. That doesn’t make it any less difficult.”

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