Monday Market Musings >>> The Delta Variant’s Devastating Effects on Supply Chains Worldwide
Updated: Aug 30, 2021
Picture by: Chris Pagan
Global Supply chains have been hit hard ever since the start of the pandemic. The distribution of essential components and supplies have had to endure many bottlenecks due to numerous restrictions to prevent the spread of Covid-19.
Manufacturers who are facing shortages have been forced into bidding wars with each other just to get space onboard vessels. “We can’t get enough components, we can’t get containers, costs have been driven up tremendously” comments Christopher Tse, CEO of Hong Kong-based Musical Electronics Ltd., Tse also reports how due to the ongoing supply chain issues, prices for some of the materials they require have increased by almost 50%, increasing their total production costs by almost 7%.
Furthermore, China has committed to a zero Covid strategy and recently had to close the Ningbo-Zhoushan port for two weeks due to detections of the Delta variant. This shows how even a small number of cases can set back shipping and the entire supply chain by weeks.
“Port congestion and a shortage of container shipping capacity may last into the fourth quarter or even mid-2022” said Hsieh Huey-chuan, president of Taiwan-based Evergreen Marine Corp., which is the world’s seventh largest container liner. He further warned “If the pandemic cannot be effectively contained, port congestion may become the new normal”.
Costs to ship containers have skyrocketed as well, whilst the cost of sending a container from Shanghai to Los Angeles has increased almost sixfold, the cost from sending one from Asia to Europe has almost increased tenfold.
Picture by: Andy Li
Senior Economist Chau Hak Bin has warned that the exponential increases in freight rates could drive up inflation rates. According to a recent Bloomberg survey of economists, the personal consumption expenditures price index is expected to rise 4% in the third quarter and 4.1% in the fourth, this is already double the original goal that the Federal Reserve had set.
The spread of the Delta variant has made it difficult for many companies to operate, from mighty companies like Toyota who have had to cut down production by 40%, to across the Pacific Ocean where UK companies are faced with record low stocks and rapid increases in retail prices.
Factories must be prepared to face lockdowns, new safety regulations, switching suppliers and the volatile nature of shipment charges all at once, making it extremely difficult to meet deadlines and supply retailers. The Deputy Chairman of the Federation of Hong Kong Industries commented, “I wish when shoppers see our product, they give it a kiss when they realize how difficult it was to get it there”.
August 30th | 11.45 AM