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News for December 4, 2021

Delta Variant Slowing Down Factory Production, World Supply Chain Hurdle Gets Worse

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The supply chain crisis that was supposed to be temporary is now likely to last into next year. As the surge delta variant disrupts Asia‘s factories and disrupts shipping, it causes more shocks for the global economy, a report said.

Due to shortages of key components, higher raw material and energy prices, and increased freight costs, manufacturers are forced to enter bidding wars for space on vessels. This pushes freight rates to record levels and causes some exporters to increase their prices or cancel shipments.

China’s determination not to allow Covid to continue means a small number of reported cases can cause major trade disruptions. This month the government temporarily closed part of the world’s third-busiest container port at Ningbo for two weeks after a single dockworker was found to have the delta variant. After the discovery of a few coronavirus cases, Shenzhen’s wharves were shut down earlier this year.

According to Drewry World Container Index, the cost to send a container from Asia into Europe is approximately 10 times more than it was in May 2020. However, the cost to ship a container from Shanghai to Los Angeles has increased sixfold. The global supply chain has become so fragile that a single, small accident “could easily have its effects compounded,” HSBC Holdings Plc. In a note.

According to Chua Hak Bin (senior economist at Maybank Kim Eng Research Pte), higher freight rates and lower semiconductor prices could lead to inflation. In addition, producers including Taiwan’s Giant Manufacturing Co., the world’s biggest bicycle maker, say they will raise prices to reflect the increased costs.

Even Toyota Motor Corp. is affected. The automaker warned this month it will suspend output at 14 plants across Japan and slash production by 40% due to supply disruptions including chip shortages.

On the other side of the planet, companies in the U.K. are wrestling with record low levels of stock and retail selling prices are rising at the fastest pace since November 2017.

Manufacturers are forced to switch raw materials between countries when factories go into lockdown. To keep production lines moving, some have turned to airfreighting materials like leather to factories, the report added.

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