Businesses and consumers around the world are starting to feel the economic impact of the COVID-19 lockdowns in China, and the repercussions are only expected to grow stronger.
Stocks of Adidas sneakers and Bang & Olufsen speakers have been hit. Automakers from Toyota to Tesla are facing “unprecedented” costs and production hurdles. Sony struggles to make enough PlayStations.
As “supply-chain disruption” resurfaces as the most-repeated term of corporate earnings season, the impact extends beyond the profits of multinational corporations. Hospitals from the US to Australia face shortages of chemicals used in X-rays, while real estate projects are held up by delayed materials.
Jake Phipps, whose US company supplies luxury plumbing and kitchen countertops to skyscraper projects, has faced months of delays in shipping faucets from Shanghai. “All construction projects here are supported by waiting for raw materials,” he said. “The supply chain is already a mess and this is making it worse.”
Beijing’s zero-tolerance approach to covid has shut down factories and warehouses, delayed truck deliveries and exacerbated container blockades. Given that the country accounts for about 12% of world trade, it was only a matter of time before the turmoil over the economies started to seep in, threatening to fuel rising inflation further.
While the impact doesn’t seem serious so far, it’s likely just the beginning. The full significance of China’s covid restrictions has yet to be seen as lockdowns in Shanghai and other cities are closed to contain smaller outbreaks, adding to the supply chain congestion that is already reeling from the war in Ukraine.
“Once Shanghai reopens and things are back in rotation and you see all the ships going to the US, that could present additional challenges with additional congestion,” said Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation in the United States. Washington.
Here’s how the situation in China is exacerbating global supply chain chaos:
Phipps, founder of Phipps International, is growing frustrated as his crane deliveries have been delayed for two to three months with no certainty about when they will be able to leave Shanghai. Suppliers repeatedly told him “five more days”, and that has now been stretched to 40 days.
A factory that made the molds to cast the cranes managed to restart last week after more than a month of inactivity. But the faucets, once made, still have to be moved to other factories to be chromed and polished, and some of those factories are still closed. Then there is the lack of truck drivers.
“That’s one of the biggest problems — truck drivers don’t transport goods because the government doesn’t want them to spread covid from city to city,” Phipps said in an interview from Miami.
Waiting for bathroom faucets and other furniture from China will further slow construction projects in the US, some of which are already a year behind schedule, Phipps said. He is shifting some of the production from China to Vietnam and buying marble, quartz and granite from Italy, Brazil and Turkey instead of China.
Sneakers & Clothing
Clothing and shoe factories in Vietnam struggle to meet orders as supplies of Chinese materials used to make everything from sneakers to pants are drying up.
The Southeast Asian country is the second largest supplier of apparel and footwear to the US, according to the American Apparel & Footwear Association, representing more than 1,000 brands.
China’s covid zero strategy is to “dramatically” reduce key material in shoe factories, which get about 60 percent of supplies from China, said Phan Thi Thanh Xuan, vice chairman of the Vietnam Leather Footwear and Handbag Association. Adidas SE slashed its profit targets this month, saying that supply bottlenecks in Vietnam have reduced product availability, causing sales to decline.
Technology & Games
The East China region around Shanghai is a major center for engineering manufacturing, and component shortages are affecting businesses across the board.
Giants of Microsoft Corp. to Texas Instruments Inc. have said the lockdowns will dampen sales and make it more difficult to manufacture products like the Xbox. Apple Inc. said last month the restrictions will take their toll on June results, with supply restrictions costing $4 billion to $8 billion in revenue.
The major iPhone supplier Pegatron Corp. lowered its second-quarter outlook for notebook shipments this week. Semiconductor Manufacturing International Corp., China’s largest chipmaker, said lockdowns could wipe about 5 percent of its production in the last quarter.
Sony Group Corp. meanwhile, lowered its sales target for the flagship PlayStation 5, citing supply chain complications due to the Covid-19 pandemic, including the lockdowns in China. nintendo co. also said there was some impact on sales due to the situation in Shanghai.
Shanghai’s COVID-19 restrictions are even impacting healthcare as lockdowns have led to a global shortage of chemicals used in imaging tests.
Healthcare facilities have seen shortages of an iodinated contrast agent known as Omnipaque, which is being produced at a GE Healthcare plant in Shanghai, the Greater New York Hospital Association said earlier this month. The chemical is widely used in X-rays, radiography and CT scans. The hospital agency warned that deliveries could be cut by as much as 80 percent in the next two months, even though the factory has now resumed production.
A spokeswoman for the Australian Society of Medical Imaging and Radiation Therapy said the contrast dye shortage could last for weeks, and orders could be arriving in the country by the end of June. The association has instructed its 9,000 members, including radiographers, to prioritize urgent scans and try to find other suppliers.
A GE Healthcare representative said the company was “working around the clock to expand capacity” of the imaging chemical.
Bang & Olufsen, the maker of luxury stereos and TVs, lowered its financial outlook this week amid developments in China. The Danish company, which sells speakers costing as much as $110,000 per pair, said the lockdowns are not only hurting local sales, but are spilling into markets outside of China as limited access to warehouses creates a range of logistical problems.
“The lockdowns are more extensive than we expected, impacting not only sales in China but also global product availability,” said CEO Kristian Tear.
A slew of automakers, from Volkswagen AG to Toyota Motor Corp., have begun to resume production at factories in Shanghai and the industrial Jilin province, although logistical problems persist.
The factory of Tesla Inc. in Shanghai is plagued by outages and closed for three weeks last month. It was restarted at the end of April under a so-called closed loop system in which workers live on site and are regularly tested. But as Shanghai remains largely in lockdown, there are still challenges in the supply of supplies and materials.
The factory, which normally shipped about 60,000 cars a month, shipped just 1,512 vehicles from Shanghai last month.
Toyota, meanwhile, is grappling with an “unprecedented” rise in logistics and raw materials costs, leading it to forecast a 20 percent decline in operating profit for the current fiscal year.
Automakers on the other side of the world are also struggling to keep up with production as parts made in China don’t arrive. According to the National Association of Automotive Vehicle Manufacturers, factories in Brazil have cut production by at least 100,000 vehicles so far this year due to a shortage of semiconductors.
In March, IHS Markit cut its forecast for global auto production in 2022 to account for the impact of Russia’s invasion of Ukraine, then cut it further last month in response to the fallout from China’s lockdowns, along with other mounting risks. .
(Except for the headline, this story has not been edited by DailyExpertNews staff and has been published from a syndicated feed.)