Shanghai in lockdown

From late March and through April 2022, China locked down Shanghai, its main financial centre and the world’s largest container port. The lockdown affected above all the city’s residents; these lines cover only its economic effects. Factories and shipments were delayed for weeks, and the news was followed closely in ports and companies around the world.

Shanghai is not just another city in the global economy. It concentrates financial, industrial and logistics activity, and a very large share of the goods traded between Asia and the rest of the world passes through its port. That is why a prolonged closure does not stay in the city: it reverberates in delivery times, transport costs and the availability of products and components in places far away. For a company that imports or relies on Asian components, a closure like this is a warning about how long and fragile the chains its activity depends on can be.

What the ‘zero-covid’ policy is

China was applying a strategy of strict containment of the virus, based on local lockdowns and intense controls whenever infections appeared. When a city of that importance is closed, the effect goes beyond the city itself and spreads to production and transport chains in the rest of the world.

That strategy meant closures could be decided quickly and prolonged while there were cases, so their duration was hard to foresee from outside. For companies that depend on Chinese suppliers, uncertainty over when activity would resume was as problematic as the closure itself, because it made it impossible to plan purchases, production and deliveries with any reliability. In practice, each company should know what share of its purchases comes from a single region and what real alternatives it has, because diversification is built before the crisis, not during it.

A chain tightens again

Supply chains, which were beginning to normalise, tightened again. A port of this scale is a bottleneck: if containers do not leave or are not unloaded, delays accumulate at origin, in transit and at destination, and the whole process becomes more expensive.

When a port becomes congested, routes also get out of step: ships arrive late, containers are not where they are needed and freight rates reflect that scarcity. Companies feel the effect with a lag, sometimes weeks after the closure, when goods that should have arrived do not or arrive at a higher cost than budgeted. It is worth bearing this in mind when calculating the margin on each order. The tighter the delivery calendar and the more dependent on a single transit point, the greater the risk that a delay becomes a failure to deliver to the final customer.

Timing as important as price

For anyone importing from Asia, delivery times became as important as price. It is worth reviewing dependence on suppliers from a single region, calculating the cost of holding extra inventory and agreeing realistic deadlines with customers instead of promising dates that cannot be guaranteed.

A practical review starts by listing the products and components that depend on a single origin and estimating how long the business would hold out if they arrived weeks late. From there one can assess whether it is worth holding more stock, finding an alternative supplier in another region or agreeing clauses with customers that allow for delays from outside causes. An adviser can help put these decisions in order. A somewhat more conservative promise that is kept is preferable to an ambitious date that forces an apology, and customers usually value that honesty.

A low price is useless if the goods do not arrive on time.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.