SHANGHAI (Reuters – China is racing to prevent the spread COVID-19. This has clogged roads and ports in China, stranding workers, and closing countless factories. It’s disrupting global supply chains that include goods ranging as diverse as electric cars to iPhones.

Factory owners may try to make it work through closed loop management, which keeps their workers inside the factory, but some say that this is harder than ever because of COVID-19 local curbs that aim to stop the Omicron variant.

Foxconn Interconnect Technology (a Foxconn unit based in Taiwan that manufactures data transmission equipment/connectors) has maintained a Kunshan plant in closed loop, but it is only capable of running at 60%, according to someone familiar with this matter.

Foxconn declined to comment on a request.

More than 30 Taiwanese companies that make electronics components said Wednesday that COVID-19 in east China caused them to stop production for at most one week.

Bosch, the German automotive parts company, had announced that they would suspend production from two locations in Shanghai and Changchun. Two other plants will be placed under closed-loop operation. Taiwan’s Pegatron corp, which makes Apple Inc (NASDAQ) iPhones, stopped production in Shanghai and Kunshan on Tuesday.

Sven Agten is Asia Pacific CEO at Rheinzink. Rheinzink is a German manufacturer of zinc construction material. He said that logistical issues make it impossible to operate a closed loop system in his Shanghai warehouse.

We need someone to work in the warehouse or the manufacturing plant, so we also need a truck driver and a driver. He said that these are two essential components and neither of them are possible.”

GRAPHIC – Container vessels crowd off key ports near Shanghai https://fingfx.thomsonreuters.com/gfx/ce/zjvqkdbzdvx/ContainerCongestionMapApr132022.png

China’s zero tolerance approach to COVID-19 despite its low incidence is showing signs of trouble, even though the rest of the world attempts to cope with it. This is due to the Omicron virus, which has a much lower fatality rate.

Localised curbs are imposed to stop virus transmission beyond the virus hotspots Shanghai or Jilin in northeast China. Gavekal dragonomics conducted a study on April 7, and found that at least 87 out of China’s top 100 cities in terms of GDP had enacted some sort of quarantine restriction.

Nio (NYSE 🙂 announced that electric vehicle maker Nio had to cease production at Hefei because other suppliers had stopped work.

TRUCKERS’ BLUES

Long queues, delays and high prices have caused truck transportation to be particularly hard hit. According to an executive from a trucking company, the normal price to book a truck between Shandong and Shanghai was more than four times higher at 7,000 Yuan ($1,100), to 30,000 Yuan.

His company has had difficulty finding trucks nearby Shanghai for two weeks due to many truck drivers being stuck on the roads or in their cities,” he stated, noting that he was also subcontracting orders to help keep the goods moving.

The logistics hub of Xuzhou began requiring that truck drivers produce negative PCR results within 48 hours in order to be eligible for further tests on arrival. They can’t get out of the trucks.

Drivers have been stuck on the highways since visiting Shanghai. This has resulted in their smartphones being invalidated and their health codes getting lost. State media last week reported that a truck driver lived in his truck seven days after he traveled to Shanghai.

CLOGGED PORTS and GLOBAL IMPACT

Foreign business associations have voiced their concern loudly. Last week, the European Chamber of Commerce China sent a letter to China stating that nearly half of German businesses were facing supply chain issues.

China attempted to mitigate the effects of curbs by maintaining ports and aiports open and encouraging closed-loop production.

But the number of container vessels waiting off Shanghai – the world’s busiest container port – and nearby Zhoushan has more than doubled since the start of April to 118, nearly three times the number a year ago, Refinitiv data showed.

GRAPHIC – Container congestion worsens off key ports along Eastern China https://fingfx.thomsonreuters.com/gfx/ce/klvykjwymvg/ContainerCongestionEasternChinaApr132022.png

Maersk, a Danish shipper from Denmark, recommended Monday to his clients to divert their attention away from Shanghai Port to more convenient destinations in China.

China has seen its growth projections cut due to disruptions. Beijing is now facing increasing challenges in reaching its official growth target, which stands at 5.5%.

Last week, ING lowered its China GDP Forecast to 4.6% from 4.8%.

Iris Pang was China’s chief economist, and warned Wednesday that China’s COVID crises could have a negative impact on global growth.

She stated that a Chinese problem could pose a threat to the world’s economy.

Chen Xin is the owner of a Guangdong family-owned garment painting and embroidery factory. He said that he was unable to ship 70-80% orders since March because his customers haven’t received them.

He said, “The present situation is that the policy’s impact is greater than the epidemic.”

($1 = 6.3651 renminbi)