Factories in Shanghai are starting to reopen as strict lockdown orders in China’s most populous city, home to the world’s largest port, begin to ease a month after they were introduced.
Last Friday, the Shanghai Commission of Economy and Information Technology, the city’s industrial development authority, declared 666 companies, primarily in industries making critical goods like cars and semiconductors, as priorities for resuming production and said it would offer them assistance in getting production lines back online.
This week Tesla resumed production at its Shanghai factory—the electric-vehicle maker’s most productive manufacturing plant—by setting up beds, showers, and entertainment areas for workers to camp out on-site. Other manufacturers in Shanghai have implemented similar “closed loop” systems to get production lines up and running.
One might think that China reopening factories would help resolve the supply chain crisis, but experts reckon a mad rush of production resumption might actually make disruption worse, at least in the short term.
“The ripple effect of COVID lockdowns will extend into June, or even further into the summer,” says Andrea Huang, senior director at supply chain software firm Overhaul, noting that logistics networks will “need to work through their backlog and lost time during the…lockdown period.”
U.S. ports on the West Coast like Los Angeles and Long Beach, which handle more incoming cargo from China than any other U.S. ports, will likely see a sudden influx of deliveries as Shanghai factories exit lockdown. But the West Coast ports are already struggling with congestion, staffing shortages, and constraints on distribution channels.
The tight labor market has resulted in fewer workers available to load and unload ships, and fewer truckers to carry cargo away. Shipping containers—both full and empty—are piling up in U.S. ports, meaning incoming ships, laden with containers, will have to wait offshore until port space can be cleared. Easing the backlog from China will make matters worse.
“We’re planning for this to go for the entire year,” James McKenna, president of the Pacific Maritime Association, which represents shippers and terminal operators along the West Coast, told Bloomberg. “There’s a lot of backlog still waiting to get out of China.”
While Shanghai’s port has technically remained in operation throughout the lockdown—by requiring its workers to sleep on-site—hundreds of ships are still positioned off the coast, waiting to load and unload cargo.
About 20% of the world’s container ships are currently waiting outside crowded ports, according to a report from shipping analytics company Windward. A third of those are waiting outside China’s ports, almost double the number from February, before Shanghai’s lockdown began.
Chinese truckers have also been tangled in COVID quarantines and restrictions, which is adding to the congestion at China’s ports.
The trucking shortage is affecting manufacturing as well, as factories report a shortage of parts, slowing a restart to production. Tesla’s Shanghai factory, which resumed operations on Monday, reportedly has just a week’s worth of components in inventory, and is only producing half as many cars as it did before Shanghai’s COVID outbreak.
Shanghai reported almost 15,700 COVID cases on Friday, a slight decrease from the day before. However, Shanghai officials announced a new wave of measures late on Thursday evening, including a new round of citywide testing and faster transfers of positive cases to quarantine facilities.
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