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Fresh Covid-19 Outbreaks in Asia Disrupt Global Shipping, Chip Supply Chain

HONG KONG—As Western economies roar back to life, a fresh wave of Covid-19 clusters in Asia—where vaccination campaigns remain in their early stages—is creating new bottlenecks in the global supply chain, threatening to push up prices and weigh on the post-pandemic recovery.

An outbreak at one of the world’s busiest ports in southern China has led to global shipping delays, while infections at key points in the semiconductor supply chain in Taiwan and Malaysia are worsening a global chip shortage that has hindered production in the auto and technology industries.

The new headaches add to inflation concerns, after China and the U.S. this week recorded their biggest annual jumps in factory-gate prices and consumer prices, respectively, in more than a decade. If such problems continue—and get worse—they could weigh on global growth.

For much of last year, China, Taiwan and many other parts of Asia kept the pandemic in check better than the U.S. and Europe and limited some of the economic damage. But as vaccination rates have risen in the West, governments have started rolling back restrictions and economies are revving up.

Immunization efforts in Asia, meanwhile, have lagged behind and authorities have largely kept in place tougher border controls to keep the virus out. Still, Covid-19 has spread. Thailand has been battered over the past two months by its worst ever surge of new cases, while Vietnam—an increasingly popular manufacturing hub that largely avoided earlier infection waves—has also suffered.

Low vaccination rates across Asia could keep in place social distancing rules and travel bans, which would disrupt manufacturing and suppress consumer spending.

“This is coming at a really fragile time when we’ve just started to see the global trade recovery pick up,” said Nick Marro, the Hong Kong-based lead analyst for global trade at the Economist Intelligence Unit.

A medical worker in a protective suit administers a Covid-19 test in Zhuhai, China, on June 8.

At Yantian, a container port in the southern Chinese city of Shenzhen, an outbreak among dockworkers has brought traffic to a virtual standstill, putting more strain on an international shipping industry that has struggled with a persistent shortage of empty containers and a weeklong blockage in the Suez Canal earlier this year.

Some ships have had to wait up to two weeks to take on cargo at Yantian, with roughly 160,000 containers waiting to be loaded, according to brokers. The price of shipping a 40-foot container to the West Coast of the U.S. has jumped to $6,341, according to the Freightos Baltic Index—up 63% since the start of the year and more than three times the price a year earlier.

Yantian handled nearly 50% more freight last year than the Port of Los Angeles—the busiest American container port—and in the first quarter of this year it saw container volume surge by 45% from a year earlier. Activity at the port, which handles more than 13 million containers a year, is now at 30% of normal levels and the delays could persist for several weeks, says Hua Joo Tan, a Singapore-based analyst at Liner Research Services.

Lars Mikael Jensen, head of network for A.P. Moller-Maersk A/S, the Danish shipping giant, said the backlog in Shenzhen would be felt globally, affecting goods sold at Walmart Inc. and Home Depot Inc., companies that have established logistics bases around the port.

“It’s a huge and very active port and when you get delayed there, it has ripple effects on supply chains across the world,” said Mr. Jensen, whose firm is diverting 40 container ships from Yantian to other ports, including Hong Kong. The blockage of the Suez Canal lasted a week and it took 10 days to clear the backlog, he said.

“Here there is no end in sight. The Chinese will keep everything closed until they are certain Covid won’t spread,” he said.

Meanwhile, Taiwan, which accounts for a fifth of the world’s chip manufacturing capacity—including a significant proportion of the chips used in the automotive industry—is suffering its worst Covid-19 outbreak since the pandemic began.

At King Yuan Electronics Co. , one of the island’s largest chip testing and packaging companies, more than 200 employees have tested positive for the virus this month, while another 2,000 workers have been placed in quarantine—cutting the company’s revenue this month by roughly a third.

Meanwhile, other semiconductor companies nearby have been grappling with their own workplace outbreaks, according to officials in Taiwan’s Miaoli county, where the recent clusters have been concentrated.

Taiwan Semiconductor Manufacturing Co. , which alone accounts for 92% of the output of the world’s most sophisticated chips, says it has not yet been affected, but the outbreak is happening next door to its headquarters in Hsinchu, Taiwan.

Given the already crippling global shortfall in the chip industry, the outbreaks in Taiwan’s tech sector “of course…will worsen the shortages,” says Brady Wang, a semiconductor analyst at Counterpoint Research.

Malaysia, home to a number of foreign-owned factories involved in chip making and producing capacitors, resistors and other key modules used in consumer electronics and cars, has also seen its production activity snarled by a wave of Covid-19 cases.

Infineon Technologies AG , a German semiconductor manufacturer with two factories in Malaysia, was told by health authorities to shut down one of its plants earlier this month, which has delayed some chip deliveries. The company’s other global factories are running at high capacity and aren’t able to pick up the slack, according to Gregor Rodehueser, a company spokesman.

After employees tested positive for Covid-19 at another Malaysia factory operated by Taiyo Yuden Co. , a Japanese manufacturer of electronics and semiconductor parts, the plant extended a holiday shutdown by 10 extra days, until Monday, as a precaution.

Source: Wall Street Journal by Stella Yifan Xie in Hong Kong, Costas Paris in New York and Stephanie Yang in Taipei

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