Fortune Magazine just came out with an article entitled: “Companies are beginning to panic: Experts say China’s lockdowns will make inflation and the supply chain nightmare even worse.” To which my immediate thought was, “beginning”? Smart companies were panicking months ago; today is just the realization of so much of that panic.
It is right now looking like Beijing will soon be in a lockdown and there is every reason to believe more cities and factories and ports will follow.
And do NOT say we did not warn you of all this. But before I turn to proving how our supply chain predictions have become reality, I will extensively summarize and quote from this Fortune article to get you up to speed with the disaster that is today’s China supply chain.
Per the Fortune article (and real life), “China’s strict COVID-19 lockdowns will exacerbate global supply chain woes and add to inflation in the coming months.” The article then discusses how China’s COVID lockdowns are increasing and all signs point to them continuing to increase. It then talks about how previous lockdowns are impacting China’s economy — fuel demand in China has dropped 20% this month “in the biggest decline since the first wave of COVID-19 lockdowns more than two years ago.” It then talks about the existing “supply chain nightmare” and why it will get worse
1. The China Supply Chain Nightmare
Per the Fortune Magazine article, one in five container ships is now stuck at ports worldwide, with 30% of this backlog “coming from China.” And here’s the kicker: we have not seen the half of it yet, as “the full impact of China’s policies will only begin to reveal itself over the coming weeks.” The article then notes that even if China lifts its strict lockdowns (which has about a 2 percent chance of actually happening, pent-up cargo created by reopened Chinese factories and will cause “higher freight rates . . . and worsen congestion at ports worldwide. The next effect will likely be felt in the U.S. West Coast’s ports of Los Angeles and Long Beach as the pent-up demand reaches them”:
“Companies are beginning to panic. The downstream impact is coming, and it’ll be heavy.” John Bree, the chief risk officer at Supply Wisdom, said. “The latest China lockdowns combined with the Russia-Ukraine war is too heavy a burden. The global chaos is going to further exacerbate disruption and take inflation to a new level.”
Bree’s statement is backed up by recent reports from investment banks, which are also warning of the economic impacts of China’s lockdowns. Bank of America analysts led by Ethan Harris said in a note to clients on Friday that it’s yet “another adverse supply shock for the global economy” that will weaken growth and extend the period of high inflation.
And Dylan Alperin, head of professional services at the supply chain software firm Keelvar, noted that transportation costs make up 7.7% of global GDP, which means delays at ports typically lead to rising inflation.
“The freight cost for a single container from China to the U.S. went from $5,900 last year to $15,764 today,” Alperin said. The impact of those price increases alone could significantly drive inflation up globally, he added.
Dawn Tiura, CEO of the Sourcing Industry Group (SIG), an association of sourcing and procurement professionals, said that she also suspects that China’s lockdowns will lead to higher inflation.
“Our supply chains are so interconnected and they’ve become fragile that a single issue in one place will affect consumers around the globe,” Tiura said.
And Jim Bureau, the CEO of Jaggaer, a global commerce and procurement technology company, noted that many U.S. manufacturers source raw materials and components from Chinese suppliers, which could lead to shortages of critical electronics and machinery components.
In other words, it is already bad out there and it will only get worse.
2. COVID is Crushing China Supply Chains and This Should Be No Surprise
In a December 31 post, we wrote on this blog that Omicron, coupled with China’s lack of preparedness for it and its Zero-COVID policy would crush China supply chains. That article delved into the science of COVID/Omicron to explain why the facts compelled this conclusion:
奥密克戎变异株传染性极强，而中国目前尚不具备像应对此前新冠变异株那样有效遏制其传播的能力。奥密克戎很可能导致中国大量工厂停工，进而促使更多采购外国产品的企业将业务重心转移出中国。
与辉瑞和莫德纳疫苗不同，中国的疫苗无法阻止奥密克戎变异株的传播。我重申，中国的疫苗无法预防奥密克戎感染，尽管它们在减轻感染带来的影响方面似乎效果相当不错。 当我向在中国的客户和朋友说明这一点时，他们的第一反应是：中国从来没有过分依赖疫苗来减缓新冠病毒的传播；中国主要依靠检测、隔离以及停工/封城措施。他们说得对，这也正是我对中国工厂生产如此担忧的原因。
《大西洋月刊》科学记者吴凯瑟琳（我获取新冠疫情相关资讯的首选信息源之一）昨日发表了题为《奥密克戎变异株需要多长时间才会让你发病？》的文章。吴女士的文章副标题写道：“这种新变异株似乎是我们迄今为止传播速度最快的一种。这使得我们现有的检测手段更难捕捉到它。”
文章探讨了为何检测在阻止奥密克戎传播方面的效果将大打折扣，因为奥密克戎的传染速度远快于此前的新冠变异毒株。等到人们检测出奥密克戎阳性时，很可能已经将病毒传播给了许多人。吴女士以挪威奥斯陆的一场婚礼为例，该婚礼上有80名宾客感染了奥密克戎：
在一篇描述奥斯陆疫情暴发的研究论文中，科学家指出，在聚会结束后，症状似乎迅速出现——通常在约三天内。 更令人担忧的是，几乎所有报告感染奥密克戎的人都表示自己已接种疫苗，且在聚会前两天内曾获得过阴性的抗原检测结果。这表明，该病毒可能在人体内繁殖得如此迅速，以至于快速检测的结果很快就不再准确。
随后，吴女士详细解释了为何奥密克戎变异株会导致检测在减缓其传播方面的效果大打折扣：
关于奥密克戎的图景正在我们体内和社区中逐渐清晰——其传播曲线呈现出陡峭、陡峭、再陡峭的增长态势。这两种现象存在关联：更短的潜伏期意味着在病毒具备传染性前，我们有更少时间锁定感染源。面对奥密克戎，自认为接触过病毒的人可能需要更早、更频繁地进行检测，以捕捉病毒传播上升期的感染迹象。 北卡罗来纳大学临床微生物学家梅丽莎·米勒向我指出，相较于其他变异株，阳性检测结果的有效期可能更短。检测结果仅能反映过去的状态，而非预示未来趋势；快速复制的病毒可能在数小时内从无法检测到极易检测——从清晨到傍晚，阴性结果可能不再有效。
这尤其可能对PCR检测构成不利影响——该检测方法在整个疫情期间一直是金标准，对诊断重症患者至关重要。 （值得庆幸的是，多数PCR检测似乎能有效识别奥密克戎毒株。）这类检测需经实验室处理才能反馈结果——通常至少耗时数小时，而在当前资源紧张的情况下，可能延长至数日。在此期间，奥密克戎病毒可能已从一人体内传播至另一人，继而继续扩散。
We then combined the above facts with China’s past performance (from which China almost never deviates) and concluded the following:
China’s vaccines will not slow the spread of Omicron and its tests will be rendered relatively ineffective as well. This essentially means one of two things will happen. Omicron will spread through China much as it is already doing in Africa, Europe, and the United States, or China will require lockdowns, shutdowns and quarantines to prevent that. Based on how China has reacted to COVID so far, I expect it will mandate lockdowns, shutdowns, and quarantines to try to slow Omicron’s spread. These lockdowns, shutdowns, and quarantines will close China factories and ports and lead to another massive supply chain crunch.
And this is exactly what is happening today.
