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China lockdowns could worsen supply chain, inflation

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Posted at 7:16 PM, Jan 19, 2022
and last updated 2022-01-19 22:52:17-05

COLORADO SPRINGS — Local businesses are bracing for even more disruptions to the global supply chain as China implements sweeping COVID-19 lockdowns.

Colorado Springs-based Borealis Fat Bikes says 60 to 70 percent of their merchandise comes from China.

"Specifically frames, forks, seat posts, saddles, and grips. If you went back two years ago, we'd order them maybe six months in advance, but now we have to order them two years in advance," said Steve Kaczmarek, CEO, and Founder of Borealis Fat Bikes.

Kaczmarek says it's one of many changes implemented to mitigate further supply chain delays.

"As a result, we are probably one of the few bike manufacturers that's in a good position. If you order a bike today, you can get it within two months. Many of our competitors are saying that if you order a bike today, you're getting it in two years," said Kaczmarek. "If they didn't put themselves in the position where their inventory levels are higher to potentially offset the delays in shipping, potential shutdowns, and other restrictions from China then I think they're going to be in a world of hurt."

He expects the delays to continue with China imposing lockdowns and the Chinese New Year ahead.

"Chinese New Year is next week, and everyone goes home for roughly two weeks. Then they're going to slowly bring employees back, quarantine them for two weeks, and then only after they take a negative test they would go back to the assembly line. My prediction is that China will shut down for a month then ramp back up," said Kaczmarek.

"The interesting thing about China imposing lockdowns is they had this zero-COVID policy pretty much since the beginning of the pandemic. There are a lot of, particularly public health officials, that say that needed to happen. The interesting thing is that because they did that, they don't have the level of immunity that different parts of the world have, including South Africa where this latest variant probably came from. Couple that with the fact they have a vaccine that is less effective, they kinda have no choice but to shut down because Omicron is going to hit them harder than it would the United States," said Executive Director of UCCS Economic Forum Tatiana Bailey

Bailey says China accounts for roughly 20 percent of all U.S. imported goods, and it continues to increase.

"If China shuts down, and we already have all of these supply bottlenecks, it's really going to make a bad problem worse, and prolong it. Even though there were some teeny tiny indications things were starting to get a little bit better at the ports, particularly on the West Coast where most of the Chinese goods come through, now with the COVID lockdowns in China and Chinese New Year coming up, it doesn't look like some of those marginal improvements will hold," said Bailey.

Bailey expects the new disruptions to make inflation, which is already at a forty-year high, even worse.

"There's an avalanche effect here because if things are already backed up and then you have another source of a backup whether it's labor, materials, or shutdown. It's kind of confounding and it's building on itself," said Bailey. "The empty shelves are going to be with us for a little while. The prices will continue to reflect that we have these bottlenecks, both on the labor and the goods themselves."

Since there are already bottlenecks, Bailey expects to see impacts of the China lockdowns in a few months.

"We are looking at new supplies that have lower costs. We are looking at suppliers in Taiwan, Mexico, Vietnam, and South Korea to potentially offset the 25 percent China tax," said Kaczmarek.