China’s Lockdowns to Have a Negative Ripple Effect on Last Mile

We’ve been here before, circa March 2020, where lockdowns in one part of the world wind up having negative ripple effects in the rest of the world.

To be specific, ports cities under pandemic lockdown in China will strain last-mile efforts down the line to get goods to consumers.

To that end, Seko Logistics issued a warning on its site on Monday (March 14): “As the outbreak of Omicron across China worsens, local authorities are enforcing restrictions which will have an impact on our offices, warehouses and operations.”

The company detailed that none of its agent warehouses in Shenzhen and Dongguan are operational and acknowledged a labor crunch, as trucking services are still operational, but a limited number of drivers are available due to COVID-19 testing policies. Airports are still operational, but flight cancellations may be in the offing.

Shenzhen is an important port city in China, and the city itself is an important central location for tech production (for example, Huawei’s headquarters is located there). Seko’s warning mirrors other observations from peer companies such as Worldwide Logistics about the wider spread of COVID-19.

Individual companies are already feeling the pinch. Foxconn, critical for iPhone production, is suspending operations due to COVID-19’s growth in Shenzhen.

Right now the lockdowns are scheduled to be a week long, but if there is anything we learned during the pandemic, it’s that lockdowns are fluid.

Beyond the pressures at the port, the impact would be felt in the “home markets” for the goods that are bottlenecked … chiefly through delays, yes, but through higher prices, too, which would have to levied to cover the higher costs of getting goods from point A to point B.

Longer lead times mean that, down the line, customer demand is left unmet. And per the simple rules of economics, with relatively outsized demand chasing too little supply, prices rise. That’s especially true if logistics providers have to scramble to find alternative ways to transport goods. The end result is that inflation bubbles higher up and down supply chains.

Inflation Readings, Too

The latest inflation reading, reported Tuesday (March 15), indicates data that were better than expected, but still point to rising prices. The producer price index was up 20 basis points, if you strip out food and energy prices (though, arguably, energy prices are factored into everyday costs, pretty much everywhere you look).

One (somewhat) muted data point does not a trend make. We note that the February PPI does not take into account the frenzy surrounding commodities (and other input costs) that have been a hallmark of March, war in Europe and lockdowns in China.

Thus far, all manner of companies have managed to pass their own higher operating costs onto consumers — consumer spending has continued to rise unabated into a rocky 2022. But there is a tipping point, at some point, especially here in the U.S., where 64% of consumers live paycheck to paycheck.

Read also: 64% of Consumers Lived Paycheck to Paycheck in January, up From 61% a Month Earlier