New Covid variant could further delay normalisation of global supply chains

Source: Lloyd’s Loading List
Date: 2nd Decemeber 2021

The arrival of the new Covid-19 Omicron variant, which the World Health Organization has warned poses a high risk across the world, is set to bring multiple supply chain challenges and implications including a possible reduction in air cargo capacity on key trade lanes, a continuance of elevated freight spot rates and potentially exacerbating labour shortages at logistics and manufacturing facilities, according to the latest analysis by Analytics.

Despite significant questions remaining about the transmissibility of the variant and the severity of its effects, dozens of countries have started to implement new restrictions since late last week, including border closures and travel bans, the supply chain risk specialist noted.

To date, Omicron has been detected in around 25 countries, and while few details are known about the variant, experts have raised the possibility that it could be more transmissible and less susceptible to existing vaccines. To slow its spread, at least 70 countries in Europe, the Americas, Africa and the Middle East, and Asia have imposed travel restrictions from several countries in southern Africa where it was first discovered.

Most countries and trading blocs such as the US, the European Union, and the UK, have been targeting travellers from South Africa, Botswana, Eswatini, Lesotho, Mozambique, Namibia, Malawi, Angola, Zambia, and Zimbabwe. Additionally, Israel, Morocco, and Japan have announced an entry ban for all foreign visitors, while Morocco has halted all incoming flights for two weeks.

Significant cargo capacity decrease

While nationals and residents may still be allowed to enter their respective countries under the new restrictions, albeit on the condition of quarantine and testing, foreign nationals will not be allowed to enter, likely forcing airlines to reduce flights into and out of southern Africa until further notice.

“Although Delta Air Lines and United Airlines have yet to modify any schedules, their European counterparts, including British Airways, Air France, and Virgin Atlantic Airways, have started to cancel flights out of South Africa since November 26. Meanwhile, Singapore Airlines has converted some passenger services to South Africa into cargo-only flights over the weekend, Analytics observed.

“A strong contingent of freighter operators has maintained routes to and from southern Africa, and other airlines may decide to turn passenger aircraft into cargo-only flights. Despite this, air cargo capacity is expected to decrease by 30% over the next few days, particularly on the key trade lanes between South Africa and North America, Europe, and Asia. Due to continuous strong demand, spot rates are likely to significantly increase until the end of the year amid the peak shipping season.”

Beyond air cargo connections to and from southern Africa, new quarantine measures for flight crews elsewhere could also lead to significantly reduced spot cargo availability in the coming weeks. For instance, capacity to New Zealand has taken a significant hit as Qantas Airlines downgraded its scheduled freighter aircraft from Sydney into Auckland, causing backlogs to New Zealand, it underlined.

Impact on labour shortages

Analytics also highlighted that similar to the Delta variant over the past summer, the new Omicron variant could exacerbate the current labour shortage and supply chain woes as personnel at logistics and manufacturing facilities could temporarily exit the workforce or be deterred from returning.

“Were labour shortages to become more severe, congestion issues affecting ports from Los Angeles to Savannah and Felixstowe could continue even longer into 2022, delaying the normalisation period of ocean supply chains, initially anticipated to happen sometime after the Chinese Lunar New Year in February 2022. With container freight spot rates remaining stable throughout November, the new variant also has the potential to keep rates at an elevated level before an anticipated correction sometime in 2022.”

Contingency measures

As more countries consider implementing tougher travel restrictions and quarantine rules, Analytics recommends that “organizations should activate contingency measures with regards to logistics and sourcing operations. Understanding your capacity needs on particularly affected routes such as from and to South Africa and anticipating longer transit times due to the reduced availability of direct flights into Europe, the US or Asia is key to ensure uninterrupted supply chain operations.”

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