ven though most of the world has ended Covid lockdowns and loosened pandemic restrictions, China remains an outlier. Its policy of “zero Covid,” though while it has likely saved lives, has also left the nation vulnerable to infection and prolonged lockdowns. Currently, an outbreak in Shanghai has become the latest stressor to the global shipping system, causing delays and rising costs.
China’s Zero Covid Policy
Since the start of the pandemic, China has pursued a policy of “zero Covid,” with the goal of keeping Covid infections as close to zero as possible. This has involved locking down entire cities, testing millions of people per day, and employing complex surveillance systems to track down and isolate individual cases.
This policy is now being tested by the latest outbreak in Shanghai, which is China’s worst outbreak since the pandemic began, with tens of thousands of new cases being reported every day. The entire city has been locked down since early April, with residents even struggling to buy food. Since Shanghai is the largest port in the world, this lockdown is inevitably having an impact on the shipping industry.
Port Slowdowns and Supply Chain Disruptions
Currently, the main problem is a shortage of trucks, which are critical for hauling goods to and from the port. Enough vehicles and drivers may even be available, but strict restrictions on the ability of trucks to approach the port have put about 90% of trucks out of action.
These restrictions have led to shipping containers piling up on the docks, plus a growing backlog of ships waiting to unload their cargo. The longer this situation continues, the greater the potential effects on the global supply chain and inflation.
The Shanghai port is so critical to the Chinese and world economy that experts around the world are monitoring the situation carefully. Top investment banks have reassessed their 2022 predictions for Chinese economic growth. The Shanghai lockdowns alone have led to UBS downgrading their forecasts from 5% growth to 4.2% growth.
The situation shows little signs of near-term change, with the number of infections continuing to grow and Chinese officials, including President Xi Jinping, holding firm on their commitment to “zero Covid.” In late April, Covid cases began to spike in Beijing, raising concerns that new Covid outbreaks could be widespread in China.
As with any complex system, the global supply chain is flexible and can potentially adjust with time. However, Chinese manufacturing has become so crucial to the global economy that the effects of the Shanghai lockdowns, as well as lockdowns in other cities like Beijing, will be felt around the world in the form of shipping delays and rising prices.