Resuming Full Production Not as Easy as Flipping Switch
Shanghai is lifting their extreme lockdown and not a moment too soon. While originally intended to be a two-phase lockdown lasting one week, the near total lockdown of Shanghai stretched to two months before being lifted on June 1st. Chinese citizens are relieved after a frightening and confusing time.
China has enforced the most stringent restrictions worldwide since March 2020. The goal of reaching community zero-COVID has frustrated Shanghai, especially. Citizens who had been separated from family and basic needs were trapped by muddled messaging from the government. Amid positive trends in cases, “some Shanghai districts tightened restrictions on movement, and even in neighborhoods that met criteria for people to be allowed to leave their homes officials were ordering them to stay put,” as recently as Friday, April 22nd according to Reuters.
Signs of life returning to normal are evident across China, with even Hong Kong Disneyland reopening after an extended closure. However, the work to bring the world’s second largest economy back to full power is just beginning.
Truckers Hit Hard by Covid Restrictions
While the port of Shanghai officially remained open during the lockdown, it was far from operating at regular volume. The daily cargo volume hovered around 100,000 containers per day, down roughly 30% from the norm of 140,000 containers. Even the containers that made it through the port have piled up as truckers inside China face roadblocks and quarantines.
Some truck drivers were forced to remain for multiple days in the cab of their trucks due to the tight restrictions around Shanghai. After hearing horror stories from fellow truck drivers, some refused to travel. The lack of available truck drivers increased the amount of containers at the port and nearly doubled the cost of domestic transportation involving Shanghai.
Prognosticators say it could take weeks, or even months, for international shipping to return to normal.
Reopening Logistics Present Difficult Hurdle
The Chinese government is doing all they can to ease the stress of the present situation. This includes providing 80,000 Shanghai businesses based in government-owned buildings with six months free rent. Despite this and other incentives, it will take time for the city to ramp up to full capacity. Goods and materials being delivered to Shanghai were nearly stopped completely during the strict lockdown.
“Shanghai is coming back with a vengeance,” predicted Tesla CEO Elon Musk during an earnings call on April 20th. The Tesla plant in Shanghai, known as Gigafactory, restarted production after a 3 week long disruption the day before. Gigafactory workers are taking multiple Covid tests each day while living and working entirely within the factory premises. Tesla was one of the first factories to resume full production during the shutdown.
Tesla remains susceptible, like every other automotive company, to the semiconductor shortage that has plagued the globe for the last two years. Most factories in Shanghai, while no longer lacking workers, do not have enough materials to operate. They are waiting for the trucking apparatus to fully restart and remove the backlog from ports.
The dominoes of the global supply chain have been knocked down, but with the help of easing restrictions in China they are slowly being set back up.
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