Lockdowns in China Threaten Global Supply Chain Recovery

By Logan Wamsley

Kunshan, China is one of the of the most important technology hubs in the global supply chain. Located approximately 30 miles west of Shanghai, it is the location of many Taiwanese-owned facilities such as Unimicron Technology, Eson Precision, and Elite Material that produce circuit boards for industries ranging from consumer electronics to automotive. Unimicron, for example, is one of Apple’s largest circuit board providers, while Eson Precision is an affiliate of Foxconn Manufacturing which is best known for being Apple’s primary contract manufacturer.

The city’s importance makes its struggle all the more concerning. As of this writing, Kunshan is under a total, multi-day lockdown to prevent the spread of COVID-19. The same is occurring in neighboring Shanghai, where Chinese authorities are attempting to test all 25 million people currently sheltering for COVID-19. This was done in response to an outbreak that has logged more than 64,000 COVID-19 cases in a single week. Two thousand army medics have been issued to the city to keep order in the medical system and help with virus prevention efforts, while 38,000 medical personnel from other provinces have streamed in to assist with testing and tracing efforts.

According to some experts, these developments could have a more devastating impact on the global supply chain than what was seen during the worst of the initial pandemic. The problem is inherently two-fold; while the stalling of inventory production is causing lead times to increase and orders to be delayed, an even larger issue arises once the lockdowns lift. The moment production resumes at a semblance of normal capacity, suppliers can expect a massive surge in demand which can overwhelm production capabilities and increase costs, as well as clog ports that are still experiencing unprecedented congestion.

“It’s probably worse than Wuhan,” supply chain consultant John Monroe told FreightWaves. “You’re going to have a lot of pent-up orders. It’s going to be an overwhelming movement of goods” that will swamp ocean shipping lines and ports once the lockdowns are lifted, increasing freight rates even more, he said.

Even despite a renewed global interest in supply chain infrastructure (which was a key element of President Biden’s $1.2 trillion infrastructure package), ports are in no condition to accommodate additional inventory surges. Supply lines are equally arduous; for example, Chicago-based Seko Logistics informed customers that highways are closed in Shanghai and some trucks attempting to deliver cargo Monday were turned back. Additionally, according to Everstream Analytics, the lack of trucking service and labor has lowered port productivity by 30% in the past week.

Such developments are just the latest sign of how interconnected the global supply chain has become. Just because one area sees improvement doesn’t mean it is free from risk or disruption, and it makes supply chain solutions that minimize such risks even more vital.