Global supply chains being battered by Covid-19 surge in Asia

HONG KONG • Asia's renewed surge in coronavirus infections is compounding supply chain blockages across the world's biggest source of manufactured goods.

The fast-spreading Delta variant has thrown into turmoil factories and ports in countries that were once among the most successful in containing the virus.

The snarls in Asia - where the United Nations estimates 42 per cent of global exports are sourced - risk twisting their way through global supply chains just as shipments would usually ramp up for the Christmas shopping season.

As earlier snags have shown, problems that start in Asian ports can ripple slowly, showing up later as delays in places such as Los Angeles and Rotterdam, and higher prices for consumers.

The flare-ups also worsen an already tortured year for exporters, with shipping costs sky-high due to a shortage of containers and as raw materials such as semiconductors become pricier and difficult to source amid red-hot demand.

"Delta is likely to significantly disrupt trade in Asia," said Dr Deborah Elms, executive director of the Singapore-based Asian Trade Centre. "Most of the markets have been fortunate in managing Covid-19 well so far. But as Covid-19 continues to spread, this lucky streak is likely to end for many locations."

In a sign of those concerns, oil prices extended declines at this week's opening in Asia as the Delta variant's spread has undermined the outlook for global demand.

In China, the world's third-busiest container port was partly shut recently, while in South-east Asia - among the worst-hit regions - factory chiefs have stalled production of electronics, garments and scores of other products.

At stake is an export boom that shielded trade-driven economies during the pandemic and was expected to fuel a broader rebound.

The World Trade Organisation had forecast Asia to lead an 8 per cent rise this year in global goods trade.

Meanwhile, the supply choke will fuel concerns that rising inflation for Chinese producers or American consumers will prove more than transitory, testing expectations among policymakers for a near-term cooling in prices.

In South-east Asia, manufacturers saw a slump in activity last month as critical exporters struggled to keep factories running.

While Indonesia, Malaysia, the Philippines, Vietnam and Thailand account for a combined 5.7 per cent of global exports, they can have a great impact on bigger economies such as the US and China, particularly in electronics, according to estimates by Natixis.

China imports 38 per cent of its data processing machines and 29 per cent of its telecommunications equipment from the five countries, while the United States depends on half its semiconductor imports from them.

Economists are already paring their growth forecasts for Asia as real-time indicators show a hit to consumption and other activity.

Among the reasons for recently downgrading their global growth forecasts, economists at JPMorgan Chase highlighted the risk from Asian countries with low vaccination rates.

The virus surge comes as exporters continue to complain of sea freight costs that can be multiples of what they were before the pandemic, mostly due to a shortage of shipping containers.

The Drewry World Container Index reached US$9,421.48 (S$12,776) per 40-foot container as at Aug 12 - about 350 per cent higher than the same time a year ago.

BLOOMBERG