The supply chain chaos is set to worsen as the impact on businesses and consumers begins to be felt around the world.

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Updated:
May 14, 2022, 6:00 p.m.

FILE PHOTO: Employees work on a production line inside an automobile factory in Wuhan, the capital of Hubei province and China’s epicenter of the novel coronavirus (COVID-19) outbreak. (Reuters)

The economic consequences of the Covid-19 shutdowns in China are beginning to be felt by businesses and consumers around the world, and the repercussions are expected to only grow stronger.

Supplies of Adidas sneakers and Bang & Olufsen speakers were affected. Automakers from Toyota to Tesla are facing “unprecedented” production costs and hurdles. Sony is struggling to make enough PlayStations.

While “supply chain disruption” once again emerges as the most repeated expression of the corporate earnings season, the impact goes beyond multinational profits. Hospitals from the United States to Australia are grappling with a shortage of chemicals used in X-rays, while real-estate projects are being held up by delayed materials.

Jake Phipps, whose US company supplies luxury bathroom fixtures and kitchen countertops to high-rise projects, is experiencing months of delays in shipping faucets from Shanghai. “All construction projects here are waiting for raw materials,” he said. “The supply chain is already a mess, and it’s only making it worse.”

Beijing’s zero-tolerance approach to Covid has slowed factories and warehouses, slowed truck deliveries and worsened container gridlocks. As the country accounts for around 12% of global trade, it was only a matter of time before the upheaval began to ripple through economies, threatening to further fuel rising inflation.

The global supply chain crisis erupts again where it all began

Although the impact doesn’t seem severe so far, it’s probably just the beginning. The full significance of China’s Covid restrictions has yet to be seen as lockdowns continue in Shanghai and other cities that have been locked down to contain smaller outbreaks, adding to supply chain congestion that is already reeling from the war in Ukraine.

“Once Shanghai reopens and everything is in rotation again, and you see all the ships heading to the United States, it may pose additional challenges with additional congestion,” said Jonathan Gold, vice president. supply chain and customs policy for National Retail. Federation in Washington.

Here’s how the situation in China is escalating global supply chain chaos:

A slew of automakers, from Volkswagen AG to Toyota Motor Corp., have started to resume production at factories in Shanghai and the industrial province of Jilin, although logistical problems persist.

Tesla Inc.’s factory in Shanghai was plagued by disruptions and closed for three weeks last month. It restarted in late April under a so-called closed-loop system in which workers live on site and are tested regularly. But as Shanghai remains largely in lockdown, challenges remain for the delivery of supplies and materials.

The plant, which typically ships around 60,000 cars a month, delivered just 1,512 vehicles from Shanghai last month.

Toyota, meanwhile, is grappling with an “unprecedented” rise in logistics and raw material costs, leading it to forecast a 20% decline in operating profit for the current fiscal year.

Automakers on the other side of the world are also struggling to keep up with production as parts produced in China are not arriving. In Brazil, semiconductor shortages have led factories to cut production by at least 100,000 vehicles so far this year, according to the National Association of Motor Vehicle Manufacturers.

In March, IHS Markit lowered its forecast for global auto production in 2022 to take into account the impact of the Russian invasion of Ukraine, then lowered them further last month in response to the fallout from the blockages in China, as well than at other increasing risks.

Date of first publication: May 14, 2022, 6:00 PM IST