Supply chain chaos is set to worsen as the impact on businesses and consumers begins to be felt around the world

Ann Koh and Augusta Saraiva, Bloomberg

May 15, 2022, 7:40 PM

Last modification: May 15, 2022, 7:44 PM

The economic consequences of the Covid-19 shutdowns in China are beginning to be felt by businesses and consumers around the world, and the repercussions are expected to only grow stronger.

Supplies of Adidas sneakers and Bang & Olufsen speakers were affected. Automakers from Toyota to Tesla are facing “unprecedented“costs and production hurdles. Sony struggles to make enough PlayStations.

While “supply chain disruption” once again emerges as the most repeated phrase of the corporate earnings season, the impact goes beyond multinational profits. Hospitals from the United States to Australia are grappling with a shortage of chemicals used in X-rays, while building projects are held up by delayed materials.

Jake Phipps, whose US company supplies luxury bathroom fixtures and kitchen countertops to high-rise projects, is experiencing months of delays in shipping faucets from Shanghai. “All construction projects here are waiting for raw materials,” he said. “The supply chain is already a mess, and it’s only making it worse.”

Beijing’s zero-tolerance approach to Covid has slowed factories and warehouses, slowed truck deliveries and worsened container gridlocks. As the country accounts for around 12% of global trade, it was only a matter of time before the upheaval began to ripple through economies, threatening to further fuel rising inflation.

Although the impact doesn’t seem severe so far, it’s probably just the beginning. The full significance of China’s Covid restrictions has yet to be seen as lockdowns continue in Shanghai and other cities that have been locked down to contain smaller outbreaks, adding to supply chain congestion that is already reeling from the war in Ukraine.

“Once Shanghai reopens and everything is in rotation again, and you see all the ships heading to the United States, it may pose additional challenges with additional congestion,” said Jonathan Gold, vice president. supply chain and customs policy for National Retail. Federation in Washington.

Here’s how the situation in China is escalating global supply chain chaos:

Construction projects

Phipps, founder of Phipps International, is growing increasingly frustrated as his faucet deliveries have been delayed for two to three months, with no certainty when they will be able to leave Shanghai. Suppliers repeatedly told him “five more days”, and that now stretches to 40 days.

A factory making molds for casting taps managed to start up last week after more than a month of inactivity. But the faucets, once manufactured, still have to be moved to other factories to be chromed and polished, and some of these factories are still closed. Then there is the shortage of truckers.

A policeman at a checkpoint on a nearly empty road during a lockdown in Shanghai in early May. Source: Bloomberg


A policeman at a checkpoint on a nearly empty road during a lockdown in Shanghai in early May. Source: Bloomberg

“That’s one of the biggest problems – truckers aren’t hauling goods because the government doesn’t want them spreading Covid from city to city,” Phipps said in an interview from Miami.

Waiting for bathroom faucets and other furniture to arrive from China will further delay construction projects in the United States, some of which are already a year behind schedule, Phipps said. It transfers part of the production from China to Vietnam and buys marble, quartz and granite from Italy, Brazil and Turkey instead of China.

Sneakers and clothes

Garment and shoe factories in Vietnam are struggling to keep up with orders as the supply of Chinese materials used to make everything from sneakers to pants are drying out.

The Southeast Asian nation is the second-largest supplier of clothing and footwear to the United States, according to the American Apparel & Footwear Association, which represents more than 1,000 brands.

China’s Covid Zero strategy “significantly” reduces key materials at shoe factories, which get about 60% of their supplies from China, said Phan Thi Thanh Xuan, vice president of the Vietnam Shoes and Handbags Association. in leather. Adidas SE this month cut its profit targets, saying supply bottlenecks in Vietnam reduced product availability, eroding sales.

Technology and games

The eastern Chinese region around Shanghai is a key hub for technology production, and component shortages are hitting businesses across the board.

Giants of Microsoft Corp. for Texas Instruments Inc. said the lockdowns would reduce sales and make it harder to produce products like the Xbox. Apple Inc. said last month that the restrictions would weigh on its June results, with supply constraints costing between $4 billion and $8 billion in revenue.

Major iPhone vendor Pegatron Corp. this week cut its second-quarter outlook for laptop shipments. Semiconductor Manufacturing International Corp.China’s biggest chipmaker, said the lockdowns could wipe out around 5% of its output 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 lockdowns in China. Nintendo Co. also said there was some impact on sales due to the situation in Shanghai.

Medical supplies

Shanghai’s Covid-19 restrictions are even impacting healthcare as lockdowns have sparked a global crisis shortage of chemicals used in imaging tests.

Healthcare facilities have experienced shortages of an iodinated contrast medium known as Omnipaque, produced at a GE Healthcare factory in Shanghai, the Greater New York Hospital Association said earlier this month. The chemical agent is widely used in X-rays, X-rays and CT scans. The hospital body has warned that supplies could be cut by up to 80% over 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 continue for weeks and it may take until late June for orders to arrive in the country. The society told 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 increase capacity” for the imaging chemical.

Luxury Stereos

Bang & Olufsen, the maker of luxury stereos and TVs, cut its financial outlook this week due to developments in China. The Danish company, which sell speakers costing up to $110,000 a pair, said the shutdowns were not only hurting local sales, but were also spreading to markets outside of China as restricted access to warehouses led to a series of logistical problems.

“The closures have been more extensive than expected, and this is not only affecting sales in China, but also the global availability of products,” said CEO Kristian Tear. mentioned.

Car manufacturers

A slew of automakers from Volkswagen AG for Toyota Motor Corp. began to resume production at factories in Shanghai and the industrial province of Jilin, although logistical problems persist.

Tesla Inc.The Shanghai factory was plagued by disruptions and closed for three weeks last month. It restarted in late April under a so-called closed-loop system in which workers live on site and are tested regularly. But as Shanghai remains largely in lockdown, challenges remain for the delivery of supplies and materials.

A driver in PPE moves a new Shanghai Tesla passenger car from a ro-ro ship in the port of Yantai on April 25. Photographer: Tang Ke/Future Publishing/Getty Images/Bloomberg

A driver in PPE moves a new Shanghai Tesla passenger car from a ro-ro ship in the port of Yantai on April 25.  Photographer: Tang Ke/Future Publishing/Getty Images/Bloomberg

A driver in PPE moves a new Shanghai Tesla passenger car from a ro-ro ship in the port of Yantai on April 25. Photographer: Tang Ke/Future Publishing/Getty Images/Bloomberg