China has partially closed the world’s third-busiest port after a worker contracted COVID-19, fueling fears of more supply-chain snarls as the delta variant spreads across the globe.
This week the Chinese government halted all inbound and outbound operations at a crucial terminal of its Ningbo-Zhoushan port. The Meishan terminal, which services shipments to the United States and Europe, was suspended until further notice after a worker there contracted the virus.
The sudden closure raises the specter of more supply chain issues, given that new infections of COVID-19 are increasing. China has a strict approach to COVID-19 outbreaks and has a stance of prioritizing containment of infections above all else. Recent outbreaks in more than a dozen provinces have prompted lockdowns and canceled events.
The fear is that the port being partially shut down is just the beginning, and more shipping terminals and places of economic importance across the country could be shuttered if cases begin to spread.
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Peter St. Onge, a research fellow for economic policy at the Heritage Foundation, pointed out that China is a major producer of intermediate goods, which are used as inputs for making final goods outside of China. He said that the issue with China closing shipping traffic is that it has a ripple effect for production and manufacturing in other countries because the intermediate goods become stuck or delayed.
He told the Washington Examiner that in the case of retailers who are selling final goods or manufacturers who are buying the intermediate goods, supply chains have already been frayed since the start of the pandemic. The port closure and potential future obstructions are not so much a second wave of supply chain issues but rather just adding further fuel to the problems that countries are already grappling with.
For example, retail inventories in the U.S. are about a third lower than they are normally, and about 30% of companies, in general, are reporting supply chain disruptions — if that is isolated to manufacturing and construction, the figure is actually closer to 60%, St. Onge said. The port closure, and potential future closures, would only add to that.
Fears about the delta variant hurting Chinese output are visible in Wall Street forecasting. Goldman Sachs recently downgraded its estimate for China’s third-quarter growth from 5.8% to 2.3% and JPMorgan cut its growth estimate to 2.0% from 4.3%.
St. Onge noted that despite the drastic third-quarter cuts, the overall yearly predictions were little changed, with the firms suggesting that fourth-quarter gains will make up for the losses being caused by the delta variant right now. St. Onge said that the assumption is that delta will come and go but highlighted that the future of the ever-evolving virus is a complete unknown.
“Who knows if lambda comes in in fourth quarter and epsilon comes in quarter one and so on,” the economist said.
The port’s closure comes in the second half of the year, a period that is typically busier for global trade than the first because of the bevy of holidays such as Christmas celebrated in North America and in Europe.
The bottlenecks and supply chain disruptions could send shipping costs soaring even higher than they are now, which could be reflected in prices that consumers pay for goods, according to Dawn Tiura, CEO of Sourcing Industry Group.
“Container shortages were already straining global supply chains. Given that Ningbo-Zhoushan is the third-largest container port in the world, this shutdown makes an already bad situation much worse,” Tiura told CNBC.
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Inflation is already a concern in the U.S., and further price increases would hurt overall economic recovery. Consumer prices increased 5.4% in the year ending July and have exceeded predictions in the preceding months.
While the country’s gross domestic product has been growing at a fast clip, confidence in the economy has not. In a shock to forecasters, consumer sentiment plunged to its lowest level in a decade in early August as the delta variant spread. Furthermore, a recent survey found that most people hold pessimistic views about the U.S. economy and its future.
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Tags: News, Shipping, Trade, Delta Variant, Coronavirus, Business, China
Original Author: Zachary Halaschak
Original Location: Chinese port closure raises fears of supply chain disruptions
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