‘COVID Zero’ Hong Kong pushes provide chain to breaking level

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Hong Kong’s Omicron outbreak is dealing a double whammy to companies.

Not solely will new social distancing curbs crimp income for retailers and eating places, a slashing of flights they depend on to deliver all the pieces from Australian cherries to Wagyu beef into the monetary hub is about to lift prices and increase inflation.

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Cathay Pacific Airways Ltd., the town’s most related airline, has canceled a whole bunch of flights. Cargo capability may drop beneath one-fifth of pre-pandemic ranges. Logistics prices might surge by 40% inside three weeks. Importers anticipate the value of fruit to rise by 10%.

Aircraft at Hong Kong International Airport As Hong Kong Scraps Flights Amid Omicron
An plane operated by Cathay Pacific takes off from the Hong Kong International Airport on Jan. 6.

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In pursuit of a “Covid Zero” technique, Hong Kong has shut bars, gyms and cinemas. At the identical time, an already fractured provide chain for a metropolis that imports most of its items has reached a breaking level, with companies seeing delays in deliveries of staples resembling berries and yogurt and of premium seafood and cheeses.

The menace of an omicron-driven surge has spooked Hong Kong, the place the vaccination charge is among the many lowest for developed economies. Though officers have discovered solely dozens of instances in the neighborhood thus far, they’re monitoring not less than three separate transmission chains.

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Amid fear of the omicron variant, the federal government has scrapped aircrew quarantine exemptions it was beforehand giving, forcing Cathay to chop cargo flights. The airline will function solely about 20% of its pre-pandemic capability this month as a result of an absence of manpower. Passenger flights have been additionally banned from eight international locations, together with the U.S., U.Ok. and Australia, additional decreasing cargo capability.

Hong Kong Cathay Express, DragonAirlines have slashed flights into Hong Kong because of the authorities’s tightening quarantine rules [File: Paul Yeung/Bloomberg]

Those two separate blows are creating “a severe shortage of freight space,” stated Gary Lau, the chairman of the Hong Kong Association of Freight Forwarding & Logistics.

Businesses closely depending on imports are bearing the brunt of the disruptions. Suppliers anticipate shortages of all the pieces from eggplant to lobster. Flowers from Europe for the upcoming Lunar New Year is also in brief provide, in addition to vegetables and fruit flown in from locations just like the U.Ok. and the Netherlands.

Hong Kong’s retail and restaurant sectors, which had simply began to recuperate after months of prior restrictions, might now miss a peak spending window throughout the Chinese vacation season. Sales from each sectors reached HK$326 billion ($42 billion) for the primary three quarters of final 12 months after the town relaxed social distancing rules. That determine was almost 30% decrease than the identical interval in 2018, the final 12 months earlier than a collection of protests gripped Hong Kong, inflicting additional financial injury.

Many companies are weathering logistical nightmares. Richard Poon, the managing director of On Kee Dry Seafood, stated orders for canned abalone and conch have been caught in Australia. His crew now depends on air freight for greater than 30% of their provide, he stated, including that the store elevated orders delivered by airplane round November to organize for the vacations.

“The supply will now be even tighter,” he stated. “We are concerned we may run out of some goods to sell to customers.”

Jacques Derreumaux, the co-founder of Cheese Club and WHAT’sIN, supply providers that supply French cheeses and recent vegetables and fruit, stated he has resorted to rerouting shipments by restricted cargo flights now that passenger flights from France have been banned. Continued disruptions to air travel would “become very problematic for all importers” if extended, he stated.

‘Logistics chain is collapsing’

Hong Kong’s strict virus rules are largely aligned with these of mainland China, which nonetheless maintains zero infections as its aim, even whereas many of the world adjusts to living with the virus. Yet the town of seven.four million depends on imported items for survival in a means that the huge mainland doesn’t, elevating issues {that a} virus technique that calls for isolation is unsustainable.

Travel restrictions will in the end translate to a spike in retail costs, stated Michael Li, the vice honorary secretary of the Hong Kong Chinese Importers’ & Exporters’ Association. Li predicted longer supply occasions and a potential rise in transport prices of about 30%.

Consumers might even see recent flower costs surge 20% to 30%, as an illustration, as a result of they’re usually flown to Hong Kong from Europe, Li stated. Prices may rise in Japanese eating places, which use premium seafood components, in addition to Chinese eating places that present seafood feasts throughout festivals.

Lau, of the Hong Kong Association of Freight Forwarding & Logistics, stated there are already indicators that “the air logistics chain is collapsing.”

“As long as the government doesn’t ease its pandemic control measures, we believe the situation won’t change in the short term,” he stated.

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