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What is the Impact of the Omicron variant on Global Supply Chains?

What is the Impact of the Omicron variant on Global Supply Chains?

As the Omicron variant of COVID-19 spreads across the world, global supply chains are bracing for yet another wave of impact. While the virus has already caused unprecedented port congestion and a global container shortage, the new strain is now undeniably the next challenge we must face.

The world first became aware of the omicron strain in November 2020, and since then it has spread much more quickly than its predecessors and has been detected in over 100 countries. The World Health Organisation said it poses a ‘very high’ global risk. Experts are calling it a “test of resilience”. Some are saying that the strain presents evidence that the crisis is “not yet over”.
Indeed, supply chains continue to be vulnerable to disruptions related to the pandemic. So below, we’ll look at the potential impact of the Omicron variant (and the responses to it) on international supply chains.

Knock-off impacts of restrictions and lockdowns

In response to the new Omicron strain, new movement and social restrictions have been reinstated across the world.
A lockdown was imposed in China, while European nations imposed restrictions on gatherings and curfews on venue opening times. A lockdown was also re-introduced in the Netherlands.

Impact on China

China is expected to continue executing its ‘zero COVID’ policy goals – destroying the presence of the virus no matter where it is, and no matter the cost. Residents living in the city of Xi’an aren’t allowed to leave their homes, except if they’re going to get tested. Some have said they don’t have enough to eat while some were evacuated and forced to enter quarantine facilities.
China’s strict protocols have already led to staff shortages, delays when loading ships and further congestion. Omicron may continue to worsen this, and the timing does not assist given that Lunar New Year is celebrated in early 2022.

We expect the lockdowns and restrictions imposed in China, and across the world, will continue to present frustrating knock-on effects across shipping. Air and ocean transport will undoubtedly be constrained even further, while we continue to experience manufacturing shortages for important products like electronic and automotive goods. This is not surprising given that some of the world’s most crucial ports are located in China, such as the Port of Shanghai and Shenzhen. 

Impacts on Asian regional exports

All around the world, supply chains are being hit by the impacts of COVID restrictions but, in Asia, workers were able to get back to it in September 2021. Omicron, however, presents new challenges which now may possibly hinder their road to revery.

Vietnamese exports are a case in point. The third wave of COVID experienced by that nation was extremely severe. A colossal range of factories shut down, with the manufacture of products like sportswear, shoes, toys and coffee significant affected. The country began to enter into recovery in late 2021, but the new Omicron variant has thrown this into uncertainty.

The potential impact of Omicron on the recovery of the South East Asian countries in the region is yet to be seen. Governments are likely to do as much as they can to prevent imposing harsh restrictions, but there is only so much they would be prepared to resist. Vietnam re-opened to international visitors, but Malaysia announced new rules such as banning mass gatherings.

If Omicron impacts supply chains in the South East Asian region, we will likely see a reduction in Asia’s Gross Domestic Product. We will also see more delays with shipments, prolonged difficulty with securing a container for your goods and ever-increasing shipping costs.    

Chaos at ports

We also expect further chaos to ensure at important ports across the world. This would not only include in China, but also in the United States.
One of the most important problems faced by U.S. ports today include staff shortages. The International Road Transport Union said that around 20% of professional truck driving positions aren’t filled. This is even despite employers offering to pay higher wages.

Also read: Shipping Delays: The Container Vessel Blocking the Suez Canal

Increased Omicron infections in the United States has resulted in transport and logistics companies struggling to find the right number of staff to address the massive demand for shipping. It does not assist that a great deal of workers who are employed in critical positions will need to enter quarantine if infected by Omicron, adding to the labour shortage (as we’ve seen before with other strains of COVID).

The result has been a massive backlog of containers in U.S. ports, and ships waiting weeks on the water outside the port just so they can unload their cargo. The Korea Ocean Business Corporation in mid-December 2021 reported that 80 vessels were waiting outside Los Angeles and Long Beach ports, and they are taking about a fortnight to berth.

Increased shipping rates

As Omicron contributes to the global slowdown in transport & logistics, rates for shipping and air freight have unsurprisingly surged.

As the volumes of exports increased in late 2021, it is becoming more and more difficult to secure space on a vessel. It is now also becoming harder to secure a profit in light of the freight rate spikes.

The numbers paint a grim picture. The Shanghai Containerized Freight Index (SCFI) increased by 125.09 points to 4727.06 points in early December. This figure has tripled in only a period of a year and is the first time that the index has exceeded 4,700 since related statistics were put together in 2009.

In the air, the TAC Index (an index for global air freight rates) also reported high numbers. Average air fares to carry freight from Hong Kong to North America increased to USD 11.54 per kilogram in November and we expect this to increase as Omicron continues to spread.

If you or your business need assistance to navigate the impact of the Omicron variant, get in touch with the freight forwarding experts at The Sourcing Co. We can help your organisation prepare for the uncertainties the new strain of COVID-19 may bring.

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