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War. Inflation. And now, Covid lockdown deja vu in China. It is a perfect storm for the global supply chain - how goods and materials get from other countries to you and me.
When disruptions take place in China, it is significant because about a third of the world's entire manufacturing capacity is based in the country. If you're buying something online there's a very good chance it was made in Shenzhen - a city of 17.5 million in the southeast where roughly half of all China's online retail exporters are based.
So, when Shenzhen went into a six-day lockdown on Sunday after a massive surge in Covid cases, it sent shockwaves through the world's businesses. The restrictions have since widened to other major cities and provinces like Shanghai, Jilin, and Guangzhou. Factories had to suspend production, and cities turned into ghost towns.
The number of ships waiting at some Chinese ports has already increased, according to project44 which monitors how freight is moving across the world. "We saw a 28.5% increase in the number of vessels waiting outside of the port of Yantian which is a major export port to Europe and North America," says Adam Compain, senior vice president of project44.
Yantian is the same port that was shut down due to Covid last year, causing major delivery delays over Christmas. The new measures come at a time when manufacturing output from China was just starting to recover after the Chinese Lunar New Year holidays in February. While China's Covid measures are drastic, however, at least most lockdowns don't last too long.
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"It's a double-edged sword," says Steven Lynch, managing director at British Chamber of Commerce China. "China comes down very quickly which causes huge disruptions but then, things will go back to normal relatively quickly." Companies also seem to be much better prepared this time.
"We've seen these lockdowns before so companies have put in a robust supply chain management," Mr. Lynch explains.
For example, e-commerce giant Amazon bought more China-based inventory to buffer any potential disruptions during earlier Omicron surges so it doesn't anticipate a significant disruption from the latest measures.
"We are able to counter these closures by diverting available freight to our neighboring warehouses in the region," an Amazon spokesperson told the BBC.
Another example is Foxconn which makes iPhones for Apple. It has tried to shift production to other manufacturing sites while resuming production by asking employees to work in a closed-loop system - or bubble - on its campus where people live and work.
"For Foxconn, it is probably easier," says Dan Wang, chief economist at Hang Seng Bank China.
"But for many of those producers, they have to rely on the shipment of other parts, mostly within the same region so it's really hard to move because the transportation within China can also be disrupted."
Source: BBC
