The current geopolitical situation is giving us all quite a bit of a headache. As if the pandemic had not caused enough chaos, the conflict in Ukraine surfaced as well, followed by the new Covid-19 outbreak and subsequent lockdown in Shanghai.
As a result of the Ukraine war, container blockages continue to represent one of the biggest problems in the logistics sector. Russian waters are now considered high-risk zones, but this is not yet the case for rail and other land transport. Rail transit through Russia and Belarus remains possible in principle. However, the volumes on the Eurasian rail route are sharply declining, due to ‘self-sanctioning’, whereby shipping companies are choosing not to transport their goods via Russia anymore, because they are concerned about the sanctions.
The city of Shanghai is facing a huge wave of Covid-19 cases. This has also affected the Chinese shipbuilding industry, including the launch of the third aircraft carrier scheduled for 23 April. The latter has a psychological effect that should not be underestimated, as the launch would have contributed positively to Xi’s image.
Meanwhile, all factory activities and the entire logistics chain in Shanghai came to an almost complete halt after the entire population of 25 million was quarantined by the authorities indefinitely. In the short term, the prolonged lockdown in Shanghai may help relieve congestion in the EU and US, but it is only temporary. Indeed, it is fairly certain that an unprecedented disruption to the entire chain is imminent. Many shipping companies are preparing to divert refrigerated containers bound for Shanghai to other ports. This lockdown will cause far greater disruptions in the supply chain than the partial closures of the ports of Yantian and Ningbo last year. And it is now more than likely much worse than Wuhan.
After all, the volume of delayed deliveries is huge. Truck drivers transporting products have been instructed to take Covid-19 tests daily, and those at risk of contamination must be quarantined. The lack of transport services and port labor has reduced the port’s productivity by 30% during the past week.
Delays in customs clearance at Shanghai and nearby ports are also causing disruptions, as are transport restrictions in Kunshan, a city located about 20 km west of Shanghai with a large presence of Taiwanese companies producing components for the consumer electronics, automobile sector and other industries. This will severely disrupt the supply of electronic components and is likely to cause long-term production halts for key customers such as Apple and Tesla.
In Shanghai, there is a good chance that Covid-19 cases will not drop significantly in the following next days. On top of that, the severe lockdown has also angered some residents of the city, so the question remains how long they will be able to keep this up.
Shanghai is traditionally a springboard to the central CCP in Beijing. In October, there will be the 20th National Congress in Beijing. The current Shanghai administration has close ties to the president, so crippling the country’s economic center and the poor results in combating the Shanghai outbreak could also have political consequences and be used by Xi’s political opponents.
Summary and translation based on the article written by @Jan Van der Borght, Port representative at Port of Antwerp
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