Shanghai lockdown ‘will have a global effect on almost all exchanges’

A series of shutdowns in Shanghai and other Chinese cities is putting severe pressure on transportation and logistics across the country, exacerbating the economic fallout from the government’s commitment to its zero-Covid policies as cases continue to rise. climb to record levels.

The disruption has hit the trucking industry in particular, which plays a vital role in transporting goods between cities and to some of the world’s largest ports, but is now subject to severe restrictions on drivers and deliveries to places where cases are positive.

“Trucking is our number one issue,” said Mads Ravn, executive vice president and global head of air freight procurement at DSV, one of the world’s largest freight brokerage firms. He added that booking truck services was nearly impossible and flight activity to Shanghai Pudong airport was only 3% of its rate last month with air cargo shipments limited to essential goods. such as drugs.

“Basically everything else is not moving but being diverted from Shanghai to other parts of China. It affects every product you can think of,” he said. “It will have a global effect on almost all exchanges.”

China is grappling with its worst coronavirus outbreak since it emerged in Wuhan more than two years ago. Shanghai reported nearly 20,000 new cases on Thursday, a record for the city.

In late March, Maersk, the Danish shipping company, warned that the city’s lockdown measures would cut trucking services to and from Shanghai by 30%. But since then the restrictions, which were originally meant to split the city in two for a staggered nine-day lockdown, have deepened and overwhelmed, enveloping the whole city at once. It is not known when the measures will be relaxed.

Danish shipping group Maersk warned last month that Shanghai’s lockdown measures would cut trucking services to and from the city by 30% © Qilai Shen/Bloomberg

The measures, which in Shanghai have led to a chorus of complaints about how difficult it is to get food as drones survey empty streets, have also been more widely implemented in China as authorities struggle to contain the worsening of the epidemic. Nomura, the Japanese bank, estimated this week that 23 cities and nearly 200 million people were under full or partial lockdown.

“These figures could significantly underestimate the total impact, as many other cities have carried out district-by-district mass testing, and mobility has been significantly restricted in most parts of China,” said Ting Lu, economist. chief for China at Nomura.

Bo Zhuang, a Singapore-based analyst at Loomis Sayles, an asset manager, said: “Many highway entry and exit points between provinces are blocked, and there has been no coordinated effort among the various provincial governments to alleviate the supply chain crisis.

Express delivery companies in Anhui and Jiangsu provinces, both in the east of the country and near Shanghai, told the Financial Times that packages could not be delivered to any areas reporting locally transmitted cases, including Shanghai.

Orders from Taobao, an online marketplace popular with Chinese consumers, have been delayed due to lockdown measures.

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In addition to domestic disruptions, analysts have warned that any domestic logistics bottlenecks will eventually lead to shipping delays due to the backlog of goods and orders – and the associated costs will surface when measures are finally eased. .

“Once Shanghai reopens, it’s deja vu of the history we’ve seen so many times,” said Lars Jensen, chief executive of Vespucci Maritime, a consultancy. “There will be increased volumes and upward pressure on spot rates.”

The latest economic data on Wednesday signaled the effects of the recent escalation in controls, with China’s Caixin service PMI posting the worst month-on-month contraction in March since early 2020.

There is no evidence of unusually long ship queues outside the world’s largest port in Shanghai, which authorities said operated a ‘closed loop’ system where workers did not leave their work premises after the end of their shift. But freight volumes through the port tracked by FourKites, a supply chain data company, had fallen by about a third since March 12 as importers and exporters rerouted freight.

China Daily, an official newspaper, said goods were increasingly being sent to Shanghai by sea as many nearby cities blocked the entry of truckers. Maersk said last week that it could provide services by “barge or rail as alternatives for the corridor between Shanghai and neighboring cities”.

But Bo said it was only a “temporary solution” because as the virus spreads to more cities and provinces, those backdoor channels would likely also be blocked by lockdown measures.

Additional reporting by Wang Xueqiao in Shanghai, Nian Liu in Beijing and Andy Lin in Hong Kong

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