Unequal vaccine distribution is battering global supply chains and sparking inflation across the globe, according to a new report from U.K.-based asset manager Schroders plc.
Global supply chain disruptions have often been attributed to diminished workforces and higher transportation costs, but the Schroders report points to something different.
“With large sections of the world yet to be vaccinated, the Delta variant has led to some countries imposing lockdown restrictions or constraints on mobility. This has caused bottlenecks to global supply chains and shortages,” it said.
Delivery times for goods have become longer and order backlogs have increased globally as a result of such supply chain disruptions, the report noted.
“With supply deliveries taking longer to meet orders, production and transportation costs are likely to increase,” the report warned. “This means suppliers have greater pricing power to pass on price rises to the consumer.”
The higher prices from supply-chain bottlenecks are viewed as temporary, the report noted. But persistent supply disruptions from Covid-19 “could mean that the impact on inflation stays longer.”
Vietnam and its supply chain have been significantly impacted by the pandemic, in part due to its low vaccination rate of 7.1%.
Out of 14 emerging markets noted in the report, Vietnam has the second longest delivery times for manufactured goods (only trailing Taiwan).
One of the causal factors to supply chain disruptions in countries with low vaccination rates has to do with public health restrictions being re-implemented and work operations being revised, or even halted.
“The authorities in Vietnam have been forced to shut factories across the country due to the recent surge in Covid cases,” the report noted, which has affected the supply of clothing and footwear, for which Vietnam is a major exporter.
Last year, the U.S. imported more than 20% of its clothing from Vietnam. U.S. retail brands like Nike have been cautioning consumers and its retailers about delays, shortages and the potential of price increases.
Getting people vaccinated in emerging markets would allow those governments to move away from zero-Covid strategies and re-open their economies, leading to economic growth and easing supply and price pressures, the report stated.
“That said, the impacts from bottlenecks to the supply-chain are often thought of as temporary. But the longer they persist, the risk is that this feeds into underlying inflation in a meaningful way. This would put more pressure on central banks worldwide to tighten policy sooner rather than later.”