COVID-19 Delta Variant Concerns Cloud Supply Chain Outlooks
Global concern over a new COVID-19 variant, termed the “delta variant,” is increasingly growing, and many analysts are becoming wary of what effect this will have on economic recovery both domestically and abroad.
On one hand, on the U.S. front there remains some optimism that the effects might be minimal, in part due to the relatively high levels of vaccination seen across the country. Consumer confidence, for example, is hovering around all-time highs. “Consumers’ appraisal of present-day conditions held steady, suggesting economic growth in third quarter is off to a strong start,” said Lynn Franco, senior director of economic indicators at The Conference Board. “Consumers’ optimism about the short-term outlook didn’t waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve.”
On the other hand, however, outlooks are much more skeptical with particular concerns for supply shortages caused by renewed COVID-19 restrictions, soaring demand, and rising inflation. “If you look at some of our suppliers and trading partners, some are down to as low to 5% in vaccination rate, “said Gregory Branch from Financial Group in an interview with CNBC. “That could cause a problem with supply chains. If that continues, we’ll continue to see inflationary pressures we’ve seen in the past few months, and they will intensify and become more acute than we ever imagined.”
Across the world, many of the supply chain conditions are not far removed from the worst times of 2020. In shipping ports, for example, limits on crew disembarking imposed by local authorities have greatly disrupted the flow of sea travel, which accounts for approximately 90% of global trade transport. “Vessel capacity is very tight, empty containers are scarce and the operational situation at certain ports and terminals is not really improving,” said German container line Hapag Lloyd said in a statement to Reuters. “We expect this to last probably into the fourth quarter — but it is very difficult to predict.”
Terrible timing in regards to natural disasters in key supply chain bottlenecks has not helped the situation either. Currently, floods in China are posing a significant hurdle for coal shipments to power plants, and floods in Germany have left roads in Germany, Belgium, Switzerland, Luxembourg, and the Netherlands washed out and untraversable since early July, impacting the import of raw materials such as steel.
These concerns prove that just because one crisis ends does not mean manufacturers can afford to deprioritize risk mitigation strategies in their supply chain. One never knows what the future might hold, or how long until the next crisis occurs. Efforts to curb reliance on just-in-time inventory and focus on early, comprehensive acquisition of inventory should be the way forward in the modern supply chain.
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