Just when you thought the pandemic was coming to an end Shanghai is in a strict lockdown attempting to contain a resurgence of Covid cases. Shanghai authorities began an immediate lockdown of the city’s 26 million residents late on Sunday after mass testing found "large-scale" COVID-19 infections throughout the financial hub. “Even a sporadic and short-live Covid resurgence could bring notable shocks to consumption and continue to weigh on consumer confidence for months after the Covid wave subsides,” Bank of America analysts wrote. With the exception of falling crude oil prices, all of the fallout will likely have negative effects worldwide.
Lockdown Reduces Demand for Gasoline In China
Oil prices retreated as much as 8% on Monday after news of Shanghai’s lockdown spurred fears about declining demand for oil from China, the world’s biggest crude importer. Abroad, the biggest potential impact on China’s Asian neighbors and the rest of the world is likely to come from developments that chill demand in the world's most populous consumer market.
Brent crude oil, the international benchmark, pared losses to trade down over 6% at around $112 per barrel by mid-day on Monday, while West Texas Intermediate crude sank even further, falling to under $106 per barrel.
This reduced demand may provide welcome, albeit temporary, relief at the pump. These new shutdown measures due to covid are expected to be short-term.
The Bottleneck Starts Here
Several factories in Shanghai have been closed temporarily as a result of the city’s lockdown, but authorities have done their best to prevent production delays by instituting restrictive systems that will let some factories remain open as long as workers are confined to factory campuses and adhere to COVID-19 testing protocols.
Still, Tesla’s Shanghai Gigafactory was forced to halt assembly lines at authorities’ request on Monday and will likely remain closed most of the week, leading to a temporary loss of the factory’s daily production of around 2,000 cars. As both car prices and inventories weren’t crazy enough.
Logistical Fallout
Shanghai’s COVID-19 lockdown has already put significant pressure on supply chains and logistics operations around the city.
While Shanghai’s ports and the Pudong airport will remain open despite the lockdown, truckers around Shanghai are finding it difficult if not impossible to secure vehicle passes that allow them to unload their cargo in an ongoing logistics nightmare in the city. Naturally, the effect of this bottleneck will flow through the worldwide supply chain. Logistics companies are switching to the nearby Ningbo port or even the much further Qingdao port in an attempt to prevent supply chain chaos around Shanghai, but consumers worldwide will likely feel the impact of Shanghai’s supply chain turmoil.
These last two years have tested the wool of Logistics planners and providers alike. Covid has left its scars upon us all, but we emerged smarter and more creative. Let’s hope this China situation is a confined and temporary measure. If we could navigate the pandemic, I think we can get through a mini-lockdown. Still, alternative resources are a welcome asset when you need them. Contact Land Link Traffic Systems today to expand your resources. Visit us @ Land-Link.com.
Stay Safe Everyone.
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Author
Michael Gaughan
Technology Officer
Land Link Traffic Systems
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