Omicron variant could hurt supply chains

Following an easing in restrictions, Asia production is ramping up to meet strong global demand for consumer goods, auto parts, and electronics. While capacity will remain tight, the efficiency Asia’s ports (including 24/7 operations) means there’s scope for production increases to be moved rapidly through logistics chains across the region.

The upturn in production should help ease global supply-chain bottlenecks heading into 2022, according to Oxford Economics. But port logjams in the US and Europe mean delays will remain significant, and global freight rates are expected to remain high into H1 2022.

Asia production has periodically been impacted by Covid outbreaks, most recently in Q3. The downturn in production affected already fragile supply chains, notably in electronics and automobiles.

But with manufacturing recovering, pressures should diminish on the more complex segments of global supply chains in 2022, which in turn will allow supply to meet demand for key consumer products.

Logistical challenges remain, as container ship demand is outstripping supply. But the relatively high levels of efficiency in Asian ports and increases in intra-Asia shipping capacity means the current ramp up should not result in an increase in regional logistical blockages.

While welcome, these improvements won’t resolve chokepoints in the US and Europe. And, while the worst may be behind Asia, a full easing of disruptions is not expected before H2 2022.

Afterwards, as consumers pivot back towards spending on services, global demand for shipping and freight rates should ease.

Supply chains remain vulnerable to pandemic-related disruptions, notes Oxford Economics, with the Omicron variant highlighting that the crisis is not yet over.