Business as usual for Bangladeshi exporters
Covid-19’s newest variant, titled the Omicron, runs the risk of jeopardizing whatever recovery global supply chains had made across the world.
The World Health Organization labeled the strain a “variant of concern,” after a South African scientist flagged its discovery. It rated the global risk posed by omicron as “very high.”
That news sent global markets tumbling as investors feared recovering economic activity would be hit as governments reimposed restrictions and lockdowns.
However, Bangladeshi exporters remain undeterred as of now, as no immediate effects were reported from their buyers as of late.
Shahidullah Azim, vice-president of the BGMEA said that the order flow is good so far.
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“Purchase orders of the apparel sector of the country have not yet been affected by the spread of a new variant of the virus, Omicron,” he added.
He also said that the buyers were informed that they were also observing the situation and would take action according to the further circumstance.
“For now, everything is normal,” he added.
Chittagong Port Authority Secretary Omar Farooq said there was no impact on the port regarding Omicron, as all activities of the port remained normal.
“We are following the instructions given by the government. In addition, Covid-19 tests are being conducted on the sailors of foreign ships as soon as they enter, which was also the case earlier,” he added.
This has also shaken global supply chains that have faced bottlenecks, shortages, delays and rising prices since March 2020.
At any given time, around 25 million containers ply the seas, on about 6,000 ships, to ports that are linked to sprawling rail and road networks.
The average cost of sea freight fell 1.5% to $9,050.77 per standard 40 foot container last week, but this is almost three times higher than a year ago, according to the World Container Index, compiled by maritime research firm Drewry.
A key route between Shanghai and New York fell 5% to $12,582 per 40 foot container last week, but earlier this year at the height of the health crisis routes between the US and China peaked at around $20,500 per 40 foot container.
The index noted that the average cost of sea freight over the last five years had been $2,709 per 40 foot container.
These higher costs have fed into higher prices for all sorts of goods and commodities, from semiconductors, cars, turkeys, toys to energy costs.
High shipping prices stem from a rise in demand at the start of the pandemic from consumers who could not spend on items such as restaurant meals, holidays and trips to the cinema.
Instead they spent on goods for their homes, ranging from desks for makeshift offices, video game consoles for entertainment to larger grocery bills.
This caught producers in factories and farms who had reduced production on the hop, because they had been hit by labour shortages sparked by the health crisis.
This was the case in many of the world’s major manufacturing plants in China, South Korea, Taiwan, Vietnam as well as Germany.
The drive of factories and farms to ramp up production to meet higher demand led to shortages, bottlenecks, and lengthy queues in ports and warehouses across the supply chain. At the same time, health restrictions led to a shortage of truck drivers, who could not easily cross borders, or simply stayed at home.
These production problems have had wide-ranging effects across all types of industries.
In the first nine months of the year, car production in the euro area was 26% lower than in the same period in 2019, and 10% lower in the US, noted the OECD, largely due to a shortage of semiconductors and metals.
India’s largest air-conditioner contract manufacturer, Amber Enterprises CEO Jasbir Singh said his company has just placed orders for an additional month of components to mitigate the impact of any cross-border trade restrictions. Amber manufactures AC for 22 brands, though fortunately for the company, its peak season is several months away.
Godrej Appliances business head Kamal Nandi too said his company will increase the component holding period to two months instead of one. “Shipping rates could further go up and shortages can happen if the Omicron variant wreaks havoc. We don’t want to take any chances” he said.
Several auto industry executives said they are closely monitoring the situation to evaluate the impact of the Omicron variant on the supply chain. Shashank Srivastava, senior executive director (marketing and sales) at Maruti Suzuki, said while supply of semiconductors has improved, the situation is dynamic. “The supply situation seems to have improved. In December, our output will be 80-85% of planned production. But going forward it is difficult to say when things will normalize as the situation is extremely dynamic/’ he said.
Aviation also takes hit
New travel restrictions prompted by the Omicron coronavirus variant have set back the nascent recovery in international flights, creating delays and headaches in some regions, according to airline and airport officials.
The flurry of new testing rules and border closings has raised concerns ahead of the important Christmas travel season, but some airline bosses said they hope any backward moves will be short-lived.
Global airlines have blamed a patchwork of shifting rules for depressed demand for international travel, which is critical for their return to profit following steep Covid-19 pandemic-related losses in 2020.
Airline stocks have recovered some ground following a sell-off last week. While investors are taking heart from anecdotal evidence that suggests the new variant might not be as lethal as originally feared, it could take weeks, even months to know its effect on the course of the pandemic.