- The current surge in container freight rates, if sustained, could increase global import price levels by 11% and consumer price levels by 1.5% between now and 2023.
- Consumer goods firms are gearing up for supply and logistics bottlenecks on concerns over the new Covid-19 variant, Omicron.
Consumer goods firms are gearing up for supply and logistics bottlenecks on concerns over the new Covid-19 variant, Omicron. According to industry executives, companies are getting in touch with Indian suppliers, tweaking logistics contracts and planning to airlift more components to retain supply amid steadily recovering demand so far.
Concerns about the impact of the Omicron variant
Japan and Israel have already shut borders on worries over the variant, which first surfaced in South Africa. Australia will delay the easing of border restrictions, while Sri Lanka, Singapore, South Korea, Indonesia and Thailand have barred travellers from South Africa. India has halted its plans to open up international flights from December 15.
Meanwhile, freight rates and container prices have been soaring. For instance, the Shanghai Containerized Freight Index (SCFI) spot rate on the Shanghai-Europe route, which was less than $1,000/TEU in June 2020, jumped to about $4,000 per TEU by end of last year and rose to $7,395 by the end of July.
“The current surge in container freight rates, if sustained, could increase global import price levels by 11% and consumer price levels by 1.5% between now and 2023,” the UN Conference on Trade and Development said in a report. Expect cargo clearance at Indian ports to be prolonged, said Ravi Jakhar, chief strategy officer of Allcargo Logistics.
Large reserve to meet demand
Personal care products manufacture Mamaearth is preparing a three-pronged strategy against any potential impact on international logistics and imports. Specifically, they have increased the number of spokes in the “hub and spoke” distribution model and packaging in case of a lockdown and ramping up safety measures for on-ground staff.
Aman Gupta, co-founder and chief marketing officer at boAt, which sells headphones and other electronic accessories, said the company is planning to keep more inventory (electronic products) than required demand due to the difficulty of predicting the impact of the Omicron Variant on the global supply chain.
Lexship, a logistics company for small retailers in the e-commerce sector, is working with retailers to tackle delays at ports and flight cancellations that may impact belly-hold cargo, said founder Padmanabhan Babu. “We have heard Chinese ports may not let liners berth for days. We have faced problems in the US and Europe, too. About 150 vessels were stuck outside California. Delivery time for overseas export shipments has already gone up from 10-12 days to 20 days,” Babu said.
According to a senior industry expert, mobile handset makers have two options – to airlift more components, which increases input costs and prices of handsets, or delay launches. Another senior executive in the handset manufacturing sector said bookings for semiconductor chips happen a year in advance, but deliverables were not working to plan as of now. “If the semiconductor manufacturer had taken 12 million units of order for the year, he can now supply barely 6-7 million.”