The economic consequences of China’s Covid-19 lockdown are beginning to be felt by companies and consumers around the world, and the reflections are expected to be even stronger.
Supplies of Adidas sneakers and Bang & Olufsen speakers have been damaged. Automakers from Toyota to Tesla are facing “unprecedented” costs and production disruptions. Sony is struggling to make enough PlayStation.
Although “supply-chain disruption” is once again emerging as the most recurring phrase of the corporate revenue season, its impact has gone beyond the profits of multinationals. Hospitals from the United States to Australia are battling a shortage of chemicals used in X-rays, while real-estate projects are hampered by delayed materials.
Jake Phipps, whose US firm provides luxury bathroom fixtures and kitchen countertops on skyscraper projects, is seeing months of delays for shipments from Shanghai. “All the construction projects here have been backed up waiting for raw materials,” he said. “The supply chain is already in turmoil, and this is making it worse.”
Factories and warehouses have been shut down, truck deliveries have slowed, and container logjam has worsened due to Beijing’s zero-tolerance approach to Covid. Since the country accounts for about 12% of global trade, it was only a matter of time before economic instability began, which threatened to drive up rising inflation further.
While the effects don’t seem serious yet, it’s probably just the beginning. The full significance of China’s Kovid ban has yet to be seen, as lockdowns in Shanghai and other cities have been closed to contain small-scale outbreaks, adding to the supply-chain congestion that has already begun since the Ukraine war.
“Once Shanghai opens again and everything turns upside down, and you see all the ships heading to the United States, that could create additional challenges with additional traffic congestion,” said Jonathan Gold, vice president of tariff policy for supply chains and national retail. Federation in Washington.
Here’s how the situation in China is exacerbating the global supply-chain chaos:
Phipps, the founder of Phipps International, is even more disappointed as his call shipments have been delayed by two to three months, with no certainty as to when they will be able to leave Shanghai. Suppliers repeatedly called it “five more days” and it has now been extended to 40 days.
A mold factory for casting mills was able to start last week after being inactive for more than a month. But the mill, once made, still needs to be moved to other factories for chrome-plating and polishing, and some of those plants are still closed. Then there is the shortage of truck drivers.
“It’s one of the biggest problems – truckers aren’t moving goods because the government doesn’t want them to spread covid from city to city,” Phipps said in an interview from Miami.
The arrival of bathroom taps and other furniture from China will further delay construction projects in the United States, some of which are already a year behind, Phipps said. He is shifting some production from China to Vietnam and buying marble, quartz and granite from Italy, Brazil and Turkey instead of China.
Sneakers and clothing
Vietnamese clothing and shoe factories are struggling to meet orders as supplies of Chinese ingredients used to make everything from sneakers to pants are drying up.
According to the American Apparel and Footwear Association, the Southeast Asian country is the second largest supplier of clothing and footwear in the United States, representing more than 1,000 brands.
Fan Thi Thanh Juan, vice chairman of the Vietnam Leather Footwear and Handbag Association, said China’s Covid Zero strategy was “dramatically” reducing key components of the shoe factory, bringing about 60 percent of the supply from China. Adidas SE has lowered its profit target this month, saying supply disruptions in Vietnam have reduced product availability, reduced sales.
Technology and games
The eastern Chinese region around Shanghai is a major hub for technology manufacturing and material shortages are hitting companies across the board.
Texas Instruments Inc. from Microsoft Corporation. So far the giants have said that lockdowns will reduce sales and make it harder to produce products like the Xbox. Apple Inc. Last month it said the sanctions would affect its June results, with সরবরাহ 4 billion to $ 8 billion in revenue spent on supply constraints.
Major iPhone supplier Pegatron Corporation cut its second-quarter outlook for notebook shipments this week. Semiconductor Manufacturing International Corporation, China’s largest chip maker, says lockdowns could wipe out about 5 percent of its output in the last quarter.
Sony Group Corporation, meanwhile, has slashed sales targets for the flagship PlayStation 5, citing supply-chain complications due to the Covid-19 epidemic, including a lockdown in China. The Nintendo company further said that the situation in Shanghai has had some effect on sales.
Shanghai’s COVID-19 bans are even affecting healthcare, as lockdowns have created a global shortage of chemicals used in imaging tests.
The Greater New York Hospital Association said earlier this month that a iodine-containing contrast medium known as Omnipack, manufactured at a GE healthcare factory in Shanghai, was lacking in healthcare facilities. Chemical agents are widely used in X-rays, radiography and CT scans. The hospital agency warned that supplies could be cut by as much as 80 percent for the next two months, although the factory has now resumed production.
A spokesman for the Australian Society of Medical Imaging and Radiation Therapy said the shortage of contrast dyes could last for weeks and end in June until orders arrive in the country. The Society has asked its 9,000 members, including radiographers, to prioritize emergency scans and try to find other providers.
A spokesman for GE Healthcare said the firm was “working around the clock” to increase the capacity of imaging chemicals.
Bang & Olufsen, maker of luxury stereos and TV sets, downgraded its financial outlook this week due to China’s development. The Danish company, which sells speakers worth $ 110,000 per pair, said the lockdowns were not only hurting local sales, but also spreading to markets outside China because of limited access to warehouses causing a string of logistical problems.
“Lockdowns have spread beyond our expectations and this is affecting not only sales in China, but also global availability of products,” said CEO Christian Tier.
Several carmakers, from Volkswagen AG to Toyota Motor Corporation, have resumed production at factories in the industrial provinces of Shanghai and Jilin, although logistical problems continue.
Tesla Inc.’s plant in Shanghai was shut down for three weeks last month, due to disruptions. It resumed in late April under the so-called closed loop system where workers stayed on site and were regularly inspected. However, with Shanghai largely locked down, there are still challenges to supply and materials.
The factory, which normally sends about 60,000 vehicles a month, delivered only 1,512 vehicles from Shanghai last month.
Toyota, meanwhile, is battling an “unprecedented” increase in costs for logistics and raw materials, which has prompted a 20 percent drop in operating profit for the current fiscal year.
Car manufacturers in other parts of the world are also struggling to keep up with the lack of Chinese-made parts. In Brazil, according to the National Association of Automotive Vehicle Manufacturers, factories have reduced production of at least 100,000 vehicles so far this year due to a shortage of semiconductors.
In March, IHS Markets downgraded its forecast for global auto production as the cause of the impact of Russia’s invasion of Ukraine in 2022, then lowered it last month in response to other mounting risks as a result of the lockdown in China.
(Except for the title, this story was not edited by NDTV staff and was published from a syndicated feed.)