American consumers hoping to find the latest iPhone in their inventory in December had better get their Christmas shopping early.
After Russia’s invasion of Ukraine and the global energy crisis, the latest round of lockdowns in China will deal another blow to global supply chains. Business leaders are warning that some high-value products could still be missing from the shelves this Christmas.
Recent weeks have seen massive shutdowns of varying degrees across the country, including a near total shutdown of Shanghai – the epicenter of Omicron’s latest outbreak and a critical node for global trade.
“It’s much bigger than Wuhan because the city of Shanghai is a much bigger manufacturing hub,” Bill Russo, a Shanghai-based American entrepreneur, told Wealth of Geeks. “Even if factories restart, the shutdowns will interrupt the flow of the parts they need to the assembly line, creating a system-wide impact.”
But it’s not just in Shanghai. Panic-buying scenes have erupted in Beijing as shoppers fear the Chinese capital could be next to sink. With the Chinese government determined to keep cases as close to zero as possible, widespread lockdowns across the country look likely throughout 2022.
The news should not cause panic among American buyers. Yet U.S. consumers must also prepare for the dual impact of product delays and price hikes.
Despite attempts by the Chinese government to reduce the impact on industrial production, at the port of Shanghai – the largest in the world – around a third of all goods remained stuck at the end of April.
Yet even if production returns to normal levels in the coming weeks, congestion from the delays will cross the Pacific and create new bottlenecks outside already overwhelmed North American ports.
“Once product export activity resumes and large numbers of ships head to U.S. West Coast ports, we expect wait times to increase significantly,” he said. Julie Gerdeman, CEO of Everstream Analytics, told Bloomberg.
Indeed, delivery times for shipments have doubled since the start of the pandemic. The average journey of a finished product from a Chinese factory to a US warehouse is now an odyssey of 111 days. It only took 46 days in early 2019.
Cars and Smartphones
Among the most affected by the confinements are the major automotive and electronic brands.
Russo, who founded Automobility.io, a consultancy specializing in the Chinese auto industry, told Wealth of Geeks that Tesla was particularly hard hit.
“51% of Tesla’s global sales in 2021 were Shanghai-made units. In the first three weeks of the lockdown, Tesla lost over 40,000 units of planned production volume,” he said, adding that the lockdown will have a “tremendous effect on the automotive industry.”
In trying to reopen, Tesla is following major European automakers like Volkswagen and Bosch, attempting to adopt a “closed-loop system” to comply with restrictions. This forces factory workers to sleep on site and undergo constant Covid testing.
The model didn’t work too well for Volkswagen. Despite the isolation of its workers from the outside world, the lockdowns are still delaying the delivery of components needed to build the cars themselves. Tesla is likely to encounter the same problems.
The outlook doesn’t look much better for Apple, the world’s most profitable electronics brand.
With around half of the tech giant’s top 200 suppliers having production facilities in and around Shanghai, expect lengthy delays.
Insiders have warned it could take another quarter of business for production to get back on track as Apple suppliers scramble for access to all sorts of inputs, from cardboard boxes to truck drivers .
Executives told Nikkei that disruption from the current shutdowns would likely impact Christmas sales.
Along with premium brands, regular items will also be affected. Despite attempts to restore manufacturing in recent years, the US economy is still heavily dependent on Chinese imports. The United States imports about 20% of all goods and 35% of electronics comes from China.
The supply shortage will affect a range of household items, including clothing, furniture and plastic items. Delays will of course lead to price increases, adding to already very high rates of inflation.
For what this means for consumers at checkout, CNN’s Matt Egan looked back to March 2020, when early Wuhan lockdowns reduced supply amid rising demand and caused prices to spike.
“The problem is that if China’s lockdown makes the supply chain crisis worse, it could keep prices quite high,” he said.
How will this affect US consumer consumption?
Reuters analysts see a return to pre-pandemic spending on leisure services like restaurants and travel. On the other hand, physical products are experiencing a stronger price increase.
Overall, consumer prices rose 7.9% in February 2022 compared to the same period last year. However, for services, the increase was more tolerable at 4.4%. This means dining and travel packages may become more attractive as store prices rise.
Although it’s still a long way off, Christmas 2022 could see more Americans treat themselves to memorable experiences than stuff their stockings with overpriced, slow-to-arrive goodies from China.