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China's supply chain crisis: need to prevent "logistics China" from becoming "silent China"

Release Time:2022-11-28 07:37:59 View:1437

Forwarded from the First Logistics Network 2022-11-28
China's supply chain may be facing a new cold winter. Under the epidemic situation, the fragile logistics arteries are meeting new challenges.
On November 20, data showed that 22,000 new cases were found nationwide, and nearly 190,000 local people were asymptomatic. Under the epidemic situation, it is more serious to prevent the import and spread of the epidemic situation through logistics channels such as freight transportation (aviation, highway, etc.), express delivery, and cold chain.
On November 18, it was reported that Suizhong County, Huludao City, Liaoning Province, had recently sentenced the defendants He and Han to four years in prison. For the logistics industry with about 20 million truck drivers, this case makes people feel the "pain of logistics" in China.
On January 22 this year, Mr. He and Mr. Han drove a large truck from Suizhong County, Liaoning Province to Mudanjiang City, Heilongjiang Province to deliver goods, and returned to Suizhong County on January 25. When they learned of the outbreak of the epidemic in Suifenhe City, Mudanjiang City, they did not report their trip to Suifenhe City.
However, Mr. He and Mr. Han were both diagnosed with COVID-19, which caused 183 people in Suizhong County to be infected, 7865 people to be isolated, and 34 closure and control areas, control areas, and key prevention areas were successively designated throughout the county. The county's financial expenditure for various epidemic emergency expenses was about 155 million yuan,
This is not a small loss. For the two truck drivers, the lesson was equally painful. The news hit the hot search, reflecting the complex emotions of the society towards the logistics industry from a certain point of view.
Since this year, the epidemic has spread in many places, and epidemic prevention in many places has been carried out in a unified way, with layers of extra measures and even the whole region silent. Logistics has suffered the most, and the impact behind it is the stability of China's supply chain. The current issue of Pandemic and Supply Chain of Handchain ? First Logistics takes you to understand this situation.
1、 Silence, Zhengzhou Jing and Foxconn Apple Hurt
Since October, an epidemic and a period of silent control have plunged Foxconn, Henan's largest foreign trade export enterprise, into a production crisis, not to mention a global supply chain crisis for Apple mobile phones.
(1) Reflection after silence, Zhengzhou's position in supply chain logistics
As for the silent management in Zhengzhou, Henan, social reflection mainly focused on the shortage of labor caused by silent management and control, focusing only on the production side of the Apple supply chain, while little analysis was made on the logistics side.
Zhengzhou can become a key hub of Apple's global supply chain, not only because Henan has a large number of cheap labor, which can optimize the production cost, but also because Zhengzhou's convenient transportation and logistics can support the global procurement and global distribution of Apple's mobile phone supply chain.
Zhengzhou is located in the thoroughfare of nine provinces and the middle hub of China's logistics artery. It is a national logistics hub city with international airport and other resources. The convenient logistics system is the key foundation for Zhengzhou to attract Foxconn to land.
Foxconn, as the world's largest Apple foundry, relies heavily on air transportation for both chip transportation and mobile phones. Foxconn Zhengzhou Science and Technology Park is located in Zhengzhou Airport District, Zhengzhou City, Henan Province. On November 1, Wang Kai, governor of Henan Province, went to Zhengzhou Airport Economic Comprehensive Experimental Zone to dispatch and guide the epidemic prevention and control work, stressing that all parties should be responsible.
After entering the production plant and living community of Foxconn Zhengzhou Science and Technology Park, Wang Kai stressed that "it is necessary to quickly establish an emergency command system that is jointly embedded by provinces, cities and enterprises, set up special work teams, maintain efficient operation, strictly control the closed-loop management of personnel and materials, and compact the main responsibility of enterprise epidemic prevention".
The next day, November 2, the Headquarters for the Prevention and Control of COVID-19 in Zhengzhou Airport Economic Comprehensive Experimental Zone, Henan Province announced the implementation of seven day global static management. Traffic control is implemented in the whole district. Except for the vehicles for living material support, epidemic prevention material support, urban operation, medical treatment support and epidemic prevention and control, public transport, taxis, online car hailing, etc. are all suspended, and other vehicles are prohibited from driving (Note: including freight logistics vehicles).
After seven days of silent management, Zhengzhou's freight logistics suddenly collapsed, which was an unexpected disaster for Apple's global supply chain.
(2) Remedy after silence, save Foxconn production in the whole province
In order to rescue Foxconn, on November 10, some townships in Henan Province were instructed to assist Zhengzhou Foxconn in recruiting workers. On November 15, Henan Province issued a document again, asking grass-roots cadres in some regions to play a leading role and go to Foxconn to work for a period of one to six months - although surprising, it can be seen that Henan is anxious.
Such a move is due to the driving effect of Foxconn's supply chain. More than half of the world's Apple phones are produced in Zhengzhou Foxconn.
By the end of 2021, Foxconn Group will achieve an output value of more than 440 billion yuan in Henan, with a year-on-year growth of 30%, accounting for about 60% of the total import and export of the province. Foxconn Zhengzhou contributed 80% of Zhengzhou's total imports and 60% of Henan's total imports, directly creating hundreds of thousands of jobs.
To paralyze Foxconn's production is to shut down half of Henan's exports.
(3) The impact after silence endangers Apple's global supply chain
The epidemic situation of Zhengzhou Foxconn has seriously endangered the supply chain of Apple mobile phones. If Foxconn production is stopped, Apple's mobile phone supply chain will be greatly threatened, and the global production of new Apple phones will be reduced by half.
Reuters said that the Zhengzhou factory, the largest one of Foxconn, had made headlines around the world because of the chaos caused by the containment measures. The iPhone production line of Zhengzhou Factory not only affects the shipment, but also aggravates the concern that China's epidemic prevention policy will affect the global supply chain in the future.
JPMorgan Chase analyst Samik Chatterjee said in a report on November 13 that if you order from Apple's website, it will take 31 days to receive the iPhone 14 Pro, which is longer than the average two-day delivery time of low-cost iPhone models.
According to Bloomberg, the production of iPhone 14 and 14 Plus is 3 million less than the initial 90 million units.
2、 Decoupling, Foxconn takes the opportunity to transfer to India?
The silent management promoted by Zhengzhou and other industrial cities has created islands in the global supply chain to a certain extent, which has made some global enterprises reflect on their supply chain layout in China.
Since Trump's time, the United States has been promoting the de localization of science and technology supply chain in a naked way. Now Biden has become more powerful. In May this year, the US led India Pacific Economic Prosperity Framework (IPEF) proposed to build an economic security alliance based on high-tech and supply chain cooperation, directly put China aside, and unite India and other Chinese supply chain alternative markets.
In August this year, after President Biden signed the 2022 Chip and Science Act, on the one hand, he authorized up to 280 billion dollars to promote chip manufacturing to return to the United States; On the other hand, promote the United States, Japan, South Korea and Taiwan, China Province of China to build a "four party alliance of chips", curb the suspension of chip supply to China, and jointly crack down on China's chip manufacturing industry.
Since then, the supply chain challenges faced by mobile phone industrial cities, including Zhengzhou and Shanghai, will not be the problem of lack of labor in the future, not the problem of production, but the problem of production order transfer and insufficient supply of upstream chips.
Apple has begun to consider getting rid of its dependence on China's supply chain. In the first half of 2022, Heshuo's factory in Kunshan, Shanghai, will stop production for several weeks due to the closure of the epidemic.
Apple CEO Cook said that the supply chain problem caused Apple's sales loss of $4 billion to $8 billion in the second quarter, and the shutdown in Shanghai was the key problem leading to this result. Since then, Apple's OEM has been increasingly moving to Vietnam and India.
Foxconn, the largest OEM company in Apple's global supply chain, has increased its footprint in India. Foxconn's Taiwan Hon Hai Group plans to add 53000 workers in India in the next two years, increasing the number of employees in its southern Indian plant from the current 17000 to 70000.
At present, the biggest disadvantage of India compared with China is the backward transportation and logistics infrastructure. However, industrial and logistics hub cities such as Shanghai, Shenzhen and Zhengzhou should not be blindly optimistic: the backwardness of Indian logistics will not last forever!
On September 21, Indian Prime Minister Modi announced that he would not launch the National Logistics Policy (NLP), the first national logistics strategy (see the Handchain report for details: https://mp.weixin.qq.com/s/JitaGR1j81fOSD4cHfnWiw )Put forward eight key actions to vigorously promote logistics infrastructure and foreign trade logistics.
All this serves another strategic vision formulated by Modi: by 2047, India will surpass China to become the world's second largest economy. At that time, "Made in India" will also catch up with "Made in China", in order to realize the logistics modernization of India.
3、 Chain protection, from "seven national rules" to "twenty national rules"
(1) State Council: Repeated ban
"It is strictly forbidden to...... Block traffic without approval, arbitrarily adopt" silent "management, arbitrarily block control, do not unseal for a long time, stop diagnosis at will and other kinds of code adding behaviors at all levels... Those who cause serious consequences shall be held accountable according to laws and regulations."
This is the second time since 2022 that the joint prevention and control mechanism of the State Council has used the word "serious accountability". On November 11, the "National 20 Rules" for optimizing epidemic prevention and control was issued, which explicitly called for the stop of epidemic prevention and increased the number of layers, especially the "random use of silent management".
Earlier, on April 11, the joint prevention and control mechanism of the State Council launched the "seven national rules" to ensure the smooth flow of goods, and for the first time proposed that "for those seriously affecting the smooth flow of freight logistics, causing material supply shortage or interruption, the relevant local authorities, units and personnel shall be seriously investigated according to law and regulations."
From the basic perspective, there are two fatal injuries of silent management: first, freight is the most basic support of the supply chain. The one size fits all silence directly leads to the interruption or blockage of logistics, the inability to bring in purchased materials and the inability to transport finished materials.
Second, human demand is the center of supply chain operation. The one size fits all silent management has led to the flow of people being blocked and demand decreasing. The decline in domestic demand is the most fatal injury to the supply chain. Some overseas orders turned to India and ASEAN, and made in China lost customers directly.
(2) Ministry of Communications: Five Prohibitions
On November 12, the joint prevention and control mechanism of the State Council held a press conference, and the Ministry of Transport required that the "five prohibitions" should be effectively implemented in response to the problems of truck traffic at all levels and excessive control, resulting in local logistics congestion and other problems
I. Prohibition: It is strictly prohibited to shut down transportation and logistics infrastructure and restrict transportation services without authorization;
Second prohibition: it is strictly prohibited to restrict the passage of trucks on the basis of vehicle registration place, registered residence place, or travel in epidemic areas;
Three prohibitions: "one size fits all" restrictions on end distribution in closed areas are strictly prohibited, and the "last meter" of distribution is effectively opened;
Four prohibitions: It is strictly prohibited to restrict the entry and exit of trucks in cities under "silent" or closed control management. Effective measures should be taken to ensure the smooth passage of freight vehicles such as the transportation of key production and living materials and the collection and distribution of important logistics hubs;
Five prohibitions: It is strictly prohibited to restrict the passage of trucks on the grounds of waiting for the nucleic acid test results, and strictly implement the requirements of "instant collection, instant departure and instant pursuit".

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