next test for the global supply chain crisis

Freighters load and unload containers at the Qingdao Port Foreign Trade Container Terminal in Qingdao, east China’s Shandong Province, November 11, 2021.

Yu Fangping | Costphoto | Barcroft Media | Getty Images

Ports and businesses have been battling the global supply chain crisis since the start of the year. As it looked like the crisis was starting to stabilize, the industry could now face another big blow: the new omicron variant Covid.

Omicron is “another test of the toughness” for already strained supply chains, said Per Hong, senior partner at Kearney consulting firm.

“Supply chains remain vulnerable to disruption from the pandemic, with the Omicron variant emphasizing that the crisis is not yet over,” Sian Fenner, chief economist for Asia at Oxford Economics, said on Wednesday in a note. Wednesday.

Lots of unknowns, but Omicron (is) certainly emerging as yet another test of resilience for global supply chains that were already under strain and in the midst of a long healing process.

By Hong

senior partner, Kearney

The world first learned about the new omicron variant late last week, after a South African scientist reported the strain’s emergence. The World Health Organization quickly called it a “variant of concern”, adding that it is likely to spread further and could potentially become a “very high” global risk.

Since then, the strain has been found among cases in the UK, France, Israel, Belgium, the Netherlands, Germany, Italy, Australia, Canada and Hong Kong.

“Ripple effects” of blockages

Although no cases of omicron have been reported in mainland China, Hong said he is closely monitoring the Chinese government’s response due to business is surfacing in Hong Kong.

China should double its ‘zero-COVID’ policy which in the past has included massive shutdowns of entire cities, forced quarantines, as well as strict controls at ports, including monitoring of ships and cargo, to prevent the case entry, “he wrote.

Other analysts have also warned that China may step up its zero Covid measures with the emergence of the omicron.

As the disruption caused by the Covid pandemic demonstrated early on, lockdown measures in one country have “significant ripple effects both upstream and downstream in other areas,” Hong said. .

“If this happens, not only will shipments be limited, but we are sure to see even more shortages of key manufacturing components and expanded order books for major electronics, automotive and consumer products depending on the regions affected.” , did he declare.

Some of the busiest ports in the world are in China. Of the 10 busiest ports, seven are in China, according to data from the World Shipping Council. Shanghai ranks first, Ningbo-Zhoushan third and Shenzhen fourth, while Hong Kong is the eighth busiest port last year.

True, the WHO has said it remains unclear whether the omicron variant causes more severe disease than other strains, such as delta.

“Lots of unknowns, but Omicron [is] certainly emerging as yet another test of resilience for global supply chains that were already under strain and in the midst of a long healing process, ”Hong said.

Omicron could delay resumption of regional exports

Most governments in the region are likely to resist the reimposition of severe restrictions, but the bottom line is that supply chains will remain under pressure as long as the threat of Covid persists.

As restrictions eased in Asia, workers were able to return and factories came back online in September – although there were still a few hurdles along the way, like the reinstatement of some restrictions to stabilize recent ones. waves of Covid, according to Fenner of Oxford Economics.

“Even though more production is online, there are still logistical challenges, especially in maritime transport but also in air freight,” she said. This includes constraints on short-term maritime supply, due to the “several-year lag” between new ship orders and deliveries.

Globally, less than half of ships arrived on time in 2021, and late ship delays consistently add more than a week to delivery times, up from around four days in 2018 and 2019, according to Oxford Economics .

Vietnam, a key exporter in Asia, is set to regain export share after a “particularly severe” third wave of Covid, research firm TS Lombard said. The pandemic had pushed the Southeast Asian country to close its factories, causing problems for many US companies with manufacturing facilities there, in particular.

But, if omicron puts the brakes on the recovery of the supply chain, it could pose a threat to the recovery of regional exports, analysts at TS Lombard said in a note on Monday.

“Most governments in the region are likely to resist the reimposition of severe restrictions, but the bottom line is that supply chains will remain under pressure as long as the threat of Covid persists,” they said.

If omicron hits supply chains, the impact on Asia’s gross domestic product is expected to be down 1.6 percentage points for next year, Oxford Economics said.


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