Economy

The long economic tail of Covid-19

Supply chain review inevitable in the medium term after disruption from Covid lockdowns

Apple has warned of a potential hit of up to $8bn this quarter from supply chain disruptions and factory shutdowns in China. Photograph: Getty Images

Sat Apr 30 2022 - 05:44

The warning by Apple of supply chain problems hitting its results in the next quarter of the year show that the impact of Covid-19 is far from over.

While the world's attention has understandably been on Ukraine, businesses are still struggling with supply chain problems. Some of these will ease but, with parts of China again in lockdown, accessing the world's biggest manufacturing hub can now be difficult and unpredictable.

Apple’s shares initially rose in the wake of strong revenues – which presumably are a good sign for its Irish operations following news of a new research investment. However, in subsequent analyst briefings it warned of a potential hit of up to $8 billion this quarter from supply chain disruptions and factory shutdowns in China.

China has been hit by a wave of Covid-related shutdowns, notably in Shanghai, its largest city, and a lot of product is now stuck in factories and warehouses in central China, with factory closures also common. Up to one quarter of China's population has been affected by lockdowns in recent weeks due to the continued zero-Covid policy.

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Semiconductor and electronic supply chains are among the worse affected, along with car manufacturers.

This threatens to again disrupt supply of consumer products to western markets and cause major difficulties for manufacturers, adding to the economic uncertainty caused by the war in Ukraine. Nor are there any signs yet of the situation easing in China, with talk that more lockdowns may be on the way.

The shutdowns add to the inflationary threat facing the world economy, with consumer demand having bounced back but supply still disrupted. And it will underline the move by many companies to re-examine their supply chains and try to lessen the threat of relying on multiple suppliers and shipping routes.

This will not happen overnight, but if major companies are struggling to secure supply then, sooner or later, things are going to change.

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