Twenty-six million residents of metropolitan Shanghai have been “locked down” since about March 28. While officially denied until the last minute, the lockdown had been widely anticipated for at least two weeks prior.
The challenges involved in supplying locked down large cities have been well-known since Wuhan. Recent lockdowns in Hong Kong and Shenzhen reconfirmed that with more consumer demand, any loss of supply capacity is amplified. Accurate pull facilitates better push. Without pull targeting where and when, push can quickly accelerate deficits. In other words, what begins bad quickly gets worse.
Two years ago China’s lockdowns were less well organized, preexisting sources and channels of supply found cracks where pull could still shape flow. Even during lockdown residents were allowed to stimulate these flows of food. Access to food stores and markets was time-and-space limited, but continued. Control is now much more complete. Preexisting pull-oriented supply chains that supplied Shanghai have been increasingly replaced by push-oriented logistics.
Well, more accurately: push-oriented logistics has been imposed in an unsuccessful effort to replace pull-oriented supply chains. (See here and here and here.) Below is a photograph of supply being pushed to quarantined demand. It does not require extensive supply chain experience to discern slack velocity. The gap between Shanghai’s supply velocity and demand velocity has rapidly widened, especially over the last week as preexisting consumer stockpiles have been eaten up (more photographs, WSJ 5:31 video on Shanghai food shortages).
It is worth noting: the electric grid is fully operating, telecoms are fine, roads and bridges are unusually friction-free without the usual traffic. (Water for human hydration can be a problem.) The government and Chinese Communist Party have extensive whole-of-nation resources committed to this task. Feeding the people of Shanghai is a top priority. But mostly as a matter of physics, it is not possible to replace high volume, high velocity demand-oriented networks with a supply-oriented command-directed pipeline at large scale with the flip of a switch.
We regularly underestimate the power of complex adaptive systems. We regularly overestimate our capacity for control.
Photographer: Liu Jin, AFP via Bloomberg
April 15 Updates: A headline in this morning’s South China Morning Post (Hong Kong): Shanghai’s forgotten elderly trapped without food, essential medicine. Another SCMP story is as fascinating for what it tells us, “between the lines,” as what it explicitly says. While Shanghai remains the covid epicenter, the Wall Street Journal reports that, “Forty-five Chinese cities with a combined 373 million people had implemented either full or partial lockdowns as of Monday, a sharp increase from 23 cities and 193 million people a week earlier, according to a survey by Nomura. The 45 cities account for more than one-quarter of China’s population and roughly 40% of the country’s total economic output.” Reuters provides a quick overview of supply chain implications. Earlier this week the International Energy Agency’s April Oil Market Report included, “Severe new lockdown measures amid surging Covid cases in China have led to a downward revision in our expectations for global oil demand in 2Q22 and for the year as a whole. Weaker-than-expected demand in OECD countries at the start of the year added to the decline. As a result, our estimate for global oil demand has been lowered by 260 kb/d for the year versus last month’s Report, and demand is now expected to average 99.4 mb/d in 2022, up by 1.9 mb/d from 2021.” Next Monday, April 18, China will release first quarter economic outcomes, disrupted consumption, production, and more are predicted to slow domestic and global flows.
Contemporary supply organizes around effectual demand.
April 30 Update: Very helpful retrospective on Shanghai food chain challenges from the South China Morning Post.