Hong Kong’s ‘COVID Zero’ policy posing threat to its supply chains

Global economies, big and small, are struggling to keep up with their revival trajectories as cases are rising amid the recent Omicron outbreak. Among those who have imposed international travel edgings, Hong Kong is struggling with its goods’ movement. As the city tightens its COVID protocols in order to maintain the ‘COVID Zero’ policy, there have been numerous predictions around the expected rise in commodity prices and the threat of a supply chain on the brink of crashing. Their social distancing policies have rendered bars, gyms & cinemas shut, and the retail & restaurant business are facing the risk of missing out on the peak spending window as the Chinese holiday season approaches. On the other hand, hundreds of flights – both cargo and passenger – have been cancelled, causing unprecedented inflation and delay in deliveries. Cargo capacities have been touted to fall below one-fifth of the pre-pandemic levels and logistics costs are being foreseen to rise by 40% in the upcoming weeks.

Though Hong Kong has recorded only a dozen cases of the Omicron variant, the officials are trying to avoid a surge as the vaccination rate is among one of the lowest in developed economies. The quarantine exceptions being previously given to the air crew have been dispensed with and due to lack of manpower, Cathay Pacific Airways Ltd. (the city’s most connected airline) will be operating only about 20% of its pre-pandemic capacity. Incoming flights from the United States, United Kingdom and Australia have also been banned.

Those two separate blows are creating a severe shortage of freight space.

~ Gary Lau, Chairman of the Hong Kong Association of Freight Forwarding & Logistics

Hong Kong is heavily dependent on the imports it makes for basic staples as well as premium food items and suppliers in the city are looking at the face of shortages of everything from eggplants to lobsters and even flowers for the Chinese holiday season. Businesses had increased orders and had them arranged to be delivered by air in November last year, in order to be well ahead of the holiday season. As a result, a major slice of their supply is dependent on air freight and they fear running out of goods to be sold to the customers.

Jacques Derreumaux, the co-founder of Cheese Club and WHAT’sIN, delivery services that offer French cheeses and fresh fruits and vegetables, said he has resorted to rerouting shipments through limited cargo flights now that passenger flights from France have been banned. Continued disruptions to air travel would “become very problematic for all importers” if prolonged, he said.

Travel restrictions will ultimately translate to a spike in retail prices, said Michael Li, the Vice Honorary Secretary of the Hong Kong Chinese Importers’ & Exporters’ Association. Li predicted longer delivery times and a possible rise in transport costs of about 30%.

There is expected inflation of 20% to 30% in the flower market as they are mostly imported, and the prices at traditional Japanese and Chinese restaurants are also expected to see a spike  – all coming down to the fact that most of the commodities used in these sectors are imported from US, UK, Australia and Netherlands. Adding on to the already unfavourable circumstances, experts fear that Hong Kong’s air logistics chain is collapsing.

Considering the vast amount of imports that the city of Hong Kong relies on, the logistics industry stakeholders have concerns that the ‘COVID Zero’ policy – prescribing complete isolation – is not sustainable for the city’s economy. According to them, as long as the government does not ease its pandemic control measures, the situation is not going to change, at least not in the short term.