Economic long Covid: supply chain bottlenecks and rising shipping costs fuel inflation fears

Tue 6 Jul 2021
Posted by: William Barns-Graham
Trade News

covid shipping

The government yesterday (5 July) announced that most Covid-19 restrictions will end from 19 July but the impact of the pandemic on global supply chains could take years to resolve.

While the UK’s successful vaccine rollout has already significantly reduced the proportion of positive Covid cases ending up in hospitalisations or deaths, the virus continues to wreak havoc on a global level.

This and the backlog of supply chain issues still to be resolved from previous waves of the pandemic could impact global trade for some time to come, businesses and supply chain experts have warned.

Sickness shortages

Covid-related congestion at North European and Asian terminals continues to disrupt global liner schedules, reports the Loadstar.

Staff attendance at key ports continues to be impacted by quarantine measures and vaccine side-effects.

Hapag-Lloyd advised customers of staff shortages at both Antwerp and Rotterdam ports and said they couldn’t operate all their cranes due to “an unusually high number of workers reported as sick, partly related to Covid vaccination secondary effects”.

Knock-on effect

The knock-on effect of this is that delays are also being reported at Southampton, where scheduling issues have caused vessels to arrive back-to-back, preventing its workforce from having sufficient breaks between arrivals.

As a result, the port’s operators are having to increase the number of teams currently onboarding vessels.

Downward spiral

Maersk told Loadstar that the situation at Yantian, which was hit by its own Covid slowdown last month, was improving, but admitted that its knock-on effects continue to be felt across the supply chain.

“The yard density is down to 65%, pushing overall productivity to 85% of normal levels,” it said. “The congestion in Yantian is clearing up, but when one port is impacted it can become a downward spiral for neighbouring ports”.

Supply disruptions

The disruption to shipping schedules is increasing shipping costs and causing supply disruptions around the globe.

This is forcing companies to push up prices, said bosses of firms including Michelin and construction materials producer Saint-Gobain in the Irish Independent.

Michelin has raised tyre prices twice since the start of the year, said CEO Florent Menegaux, with the cost of shipping containers between Singapore and the US having quadrupled from $2,400 in 2019 to $9,800.

Air Liquide SA CEO Benoit Potier predicted that bottlenecks will take as long as two years to work themselves out.

Inflationary pressure

Goods shortages and supply bottlenecks are increasingly being blamed for rising costs, especially as demand surges with the lifting of Covid-19 restrictions in advanced economies, reports the Telegraph.

This in turn is leading to fears of inflation, with the Organisation for Economic Cooperation and Development (OECD) reporting that the rate of inflation among advanced economies was 3.8% over May, up from 3.3% in April.

'Everyone would lose'

Yesterday’s CIPS/IHS Markit monthly Purchasing Managers’ Index (PMI) for UK services also indicated that inflation is increasing, with data for June showing the sharpest escalation in price inflation for 25 years.

In recent days, the Bank of England chief economist Andy Haldane has warned that inflation could hit 4% this year, double the bank’s target.

The economist warned that "everyone would lose" from greater inflation unless early action was taken to prevent the need for an “economic handbrake turn”.