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.
Logistics company executives are also expecting further delays in sea and air cargo shipments, as also increased freight rates and container prices.
Japan and Israel have already shut borders on worries over the variant, which first surfaced in South Africa. Australia will delay easing of border restrictions, while Sri Lanka, Singapore, South Korea, Indonesia and Thailand have barred travellers from South Africa.
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 per twenty-foot equivalent units (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.
Uncertainty Abounds
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.
Direct-to-consumer personal care brand Mamaearth is preparing a three-pronged strategy to safeguard against any potential impact – international logistics and imports, increasing the number of spokes from distribution and packaging in case of a lockdown and ramping up safety measures for on-ground staff. “Even last year, with higher planning, we still saw the impact because of border and customs port closures. So, I think we are clearly looking at building up an inventory of materials which are imported…,” said Varun Alagh, cofounder, Mamaearth. “Lesser dependence…can still lead to breaking down of the supply chain for certain products.”
Aman Gupta, cofounder and chief marketing officer at boAt, which sells headphones and other electronic accessories, said the company is planning to “keep more inventory (electronics products) than required as there is a sense of unpredictability in global supply chains due to the new Omicron variant.”
Lexship, a logistics company for small retailers in the ecommerce 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.
Semiconductor Woes
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. “Although it is a lean season between January and March, there are launches. Companies may postpone if they can’t meet their volumes,” the person said.
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. Production for all clients has gone down and there is no way that the handset maker can book for a longer period. His current need is not fulfilled,” the executive said.
Source : Economic Times
