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Another China lockdown jeopardizes electronics, auto supply chains

A five-day lockdown to contain the spread of COVID in the Chinese city of Kunshan, an important production center for electronics components, could severely squeeze the supply of laptops, mobile phones, TVs and automobiles, according to industry and media reports from the region.

Meanwhile, factory and logistics activity in Shanghai has been slashed further with the entire population of 25 million sheltering in place after authorities indefinitely extended a quarantine mandate that was supposed to end Tuesday morning. Officials are trying to test everyone in Shanghai amid a record outbreak of nearly 13,000 cases as President Xi Jinping continues to insist on a “zero-COVID” policy that is wearing out many residents and businesses.

The protracted, spreading confinement measures are likely to cause supply chain disruptions far greater than last year’s partial closures of the ports of Yantian and Ningbo due to limited outbreaks and more on par with the manufacturing blackout that began in Wuhan at the start of the pandemic two years ago, said ocean shipping expert Jon Monroe. 

Monroe, who heads an eponymous supply chain consulting firm, and other analysts warn that U.S. and European ports are likely to experience a lull in inbound cargo, followed by a huge surge that exacerbates existing congestion.

“It’s probably worse than Wuhan,” he told FreightWaves. “You’re going to have a lot of pent-up orders. It’s going to be an overwhelming movement of goods” that will swamp ocean shipping lines and ports once the lockdowns are lifted, jacking up freight rates even more.

Kunshan’s Taiwan connection

Kunshan, located about 30 miles west of Shanghai, has a heavy presence of Taiwanese companies that produce circuit boards and other components for consumer electronics, autos and other industries.

The lockdown there has forced several large Taiwanese suppliers to shut down subsidiaries, including Unimicron Technology, Eson Precision and Elite Material. Everstream Analytics, which helps companies identify and mitigate supply chain risk, says it has tracked more than 15 companies that have closed their doors because of the lockdown. 

Unimicron supplies printed circuit boards to customers such as Apple. Eson Precision is an affiliate of Foxconn, the mega-contract manufacturer that builds iPhones for Apple (NASDAQ: AAPL) and supplies components to automaker Tesla (NASDAQ: TSLA) Last week Tesla suspended production at its Shanghai auto plant, according to Reuters. 

Also suspending Kunshan operations, or operating in a self-contained loop, are Nandian, Nanya, Tongxie, Taiwan Optoelectronics and Xinxing, the Commercial Times in Taiwan reported. That means manufacturing sites can stay open if workers live on-site or are transported back and forth to a communal place of residence, such as a hotel or dormitory, without the chance to return home.

As in Shanghai, there is a strong chance that COVID-19 cases won’t drop significantly within five days and the Kunshan lockdown will be extended, “causing serious disruption to the supply of electronics components and likely causing extended production downtime at key customers such as Apple and Tesla,” Everstream Analytics said in a note to customers.

By comparison, the February lockdown in Suzhou, another key electronics manufacturing hub near Shanghai, lasted about 10 days, while Xi’an, where many semiconductor manufacturing facilities are located, was under a stay-at-home order for four weeks, according to the risk prevention firm.

The severity of the current outbreak — by U.S. standards low, but the highest in China since the Wuhan lockdown — suggests that electronics and automotive supply chains will experience “significant disruption due to supplier outages in the coming seven to 10 days,” Everstream said. 

Shanghai logistics gridlock

Authorities on Friday kept a lockdown in eastern Shanghai beyond the initial five days after mass screening identified too many positive cases and now say residents on the western side will remain subject to isolation rules until case counts decline. The world’s largest container port and Shanghai Pudong International Airport are technically open, but most factories and warehouses are closed because workers are stuck at home, while truck drivers often can’t cross district lines or go to other cities to move goods, according to logistics companies in the area.

Some companies have been able to shift production to factories outside lockdown zones but face challenges getting shipments to export gateways.

Chicago-based Seko Logistics informed customers that highways are closed in Shanghai and some trucks attempting to deliver cargo Monday were turned back. Port container terminals are accepting deliveries from drivers picking up from factories outside of Shanghai if they have a negative COVID test within 24 to 48 hours, depending on the type of test, and special government permits.

The lack of trucking service and labor has lowered port productivity by 30% the past week, according to industry checks by Everstream Analytics. Many carriers have diverted to the Port of Ningbo, while others have shifted to barge or rail to get imports out of the port to consignees. Seko Logistics said Ningbo is now experiencing delays, congestion and equipment shortages due to the increased demand. And local authorities are requiring all drivers entering the Ningbo Meishan Terminal to undergo COVID testing due to increased positivity rates among drivers over the weekend.

Many international airlines, including Delta Air Lines (NYSE: DAL) continue to suspend flights to the Pudong airport, while logistics companies reroute shipments to cities such as Zhengzhou, Qingdao or Beijing, if possible.

Click here for more FreightWaves and American Shipper stories by Eric Kulisch.

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