A problem which had plagued businesses during the lockdown, supply chain disruptions are gradually easing although effects such as inflation are being felt in many areas.
While pockets of disruptions still exist, affecting growth, they will likely ease over time but the problem has put modes of transportation into scrutiny.
In plantations, worker shortages have driven crude palm oil prices up steeply while disruptions in fertiliser exports from China are affecting plantation operations.
Disruptions in magnesium supplies from China are affecting the production of aluminium ingot, leading to disruptions in vehicle parts production in Malaysia as well.
“Disruptions will continue to plague world trade at least until mid-2022,’’ said former Inter-Pacific Securities head of research Pong Teng Siew.
Companies with deep pockets attempt to circumvent the problem but some smaller companies are still bearing the brunt of the problem.
Visible risks of higher infection numbers amid the need to reopen the economy is placing a dilemma on the government and businesses.
Over time, we will need to reinvent the supply chain, potentially redirecting some of the goods to other modes of transportation.
“Excess capacity in the aviation sector can be utilised to solve this problem but it will take time to build efficiencies and economies of scale,’’ said Bank Islam chief economist Mohamed Afzanizam Abdul Rashid.
Malaysia’s international trade has been concentrated on sea transport, which accounted for 55% of total exports in the first eight months of 2021; this stood at 58% for imports.
In contrast, air and land transport accounted for 31% and 14%, respectively, of exports; for imports, it was at 30% and 12%, respectively.
While there are now less disruptions in the operations of its suppliers, bus manufacturer Gemilang International Ltd, which is listed on the Hong Kong Stock Exchange, is experiencing a tremendous rise in prices of commodities such as aluminium and steel, which it uses for building buses.
“This has forced us to revise our cost and selling prices every month,’’ said Gemilang International chairman and CEO Pang Chong Yong.
Pang had faced risks of losing orders due to difficulties in getting local supplies.
“Internationally, the imbalance in supply and demand of containers is not only killing our profit margins but also delaying shipping time and our production schedule,’’ added Pang.
Gemilang International has a factory in Senai, Johor, and produces buses for markets such as in Singapore, Australia, Dubai and Hong Kong.
There are some positive news though.
As major suppliers in the timber industry resumed operations, Southern Cable Group Bhd, a registered supplier with Tenaga Nasional Bhd (TNB) and other companies, had also resumed its production of wooden cable drums since September.
During the lockdown, Southern Cable had experienced a shortage of sawn timber from major upstream suppliers, which affected its production of wooden cable drums used for delivery of cables and wires.
With more states transitioning to phases three and four of the National Recovery Plan (NRP), Southern Cable is seeing a surge in demand for cables and wires.
“We also continued to secure new contracts from Telekom Malaysia Bhd and TNB in September and October, respectively,’’ said managing director Tung Eng Hai.
Southern Cable is optimistic of greater demand for new cables and wires following new projects in the power, renewable energy, construction and infrastructure sectors.
In early August, even during phase one of the NRP, Tuju Setia Bhd, which is involved in the construction of high-rise buildings as well as design and construction of hospitals and healthcare facilities, was allowed to operate due to the high vaccination rate of its workforce.
“We are expecting improved billings in the fourth quarter, supported by our order book of RM1.2bil as of June 30, 2021,’’ said managing director Wee Eng Kong.
Tuju Setia’s projects in the designated green zones were allowed to operate at 60% workforce capacity.
As its retail and food and beverage customers start opening new stores and registering more transactions on its cloud portals, Radiant Globaltech Bhd is seeing quicker rollout of its hardware and software solutions.
Radiant Globaltech, which provides retail and industrial technology solutions, is also seeing greater urgency by potential customers on the need to digitalise and automate their processes.
“We are optimistic of seeing greater demand as we help businesses transition to automated processes, lower operating costs and a smoother technology adoption,’’ said managing director Paul Yap Ban Foo.
As the stocking season for Christmas starts, short-term disruptions in the fast-moving consumer goods sector should ease over the next month.
Supply disruptions for durable goods such as cars, where the industry is facing shortages of chips, should also ease as economies open up across Asia, except for China, said Etiqa Insurance & Takaful Bhd chief strategy officer Chris Eng.
China is pursuing a zero-Covid-19 policy and is still subject to numerous shutdowns; coupled with the power crunch to manage carbon footprint, parts supply from China remain uncertain.
To minimise the potential inflation risk from high energy prices, the government should start strategising in view of the growing number of countries facing this problem.
Tax incentives and further financial aid for small and medium enterprises (SMEs) will help, as cash terms are now preferred, leading to enormous cashflow issues for SMEs.
“With the high rate of vaccination, the government may also focus on ensuring the smooth running of agencies and bodies such as Customs and licensing bodies,’’ said Pang of Gemilang International.
The government should invest more resources in advanced contact tracing, targeted isolations and quarantine procedures, to avoid locking down entire sectors, causing substantial losses for many businesses.
Screening data can be submitted by construction companies so that lockdown can be implemented effectively without affecting the entire construction sector.
More incentives can be given to accelerate technology adoption among enterprises and micro businesses.
“The Malaysian Digital Economy Corp can also consider expanding the number of grants and incentives to help businesses speed up in this area,’’ said Yap of Radiant Globaltech.
Even as things are gradually improving, it is important to ensure smooth progress in the rehabilitation of supply chains, as any disruptions again with another surge in Covid-19 cases will mean going back to square one.
Source: https://www.thestar.com.my/business/business-news/2021/11/01/supply-chain-disruptions-easing-gradually