Insight - Production bottlenecks can dampen recovery

“We appeal for a procedure whereby guest workers can be safely brought into Malaysia; employers are willing to bear this cost, ’’ said United Plantations CEO Datuk Carl Bek-Nielsen.(pic)

PRODUCTION bottlenecks as in shortage of containers and labour as well as restriction of movement in the current fight against Covid-19, can affect economic recovery.

With higher logistics costs, countries dependent on imports of globally traded goods may not be able to afford them anymore, thus affecting consumption.

Workers stuck at home under lockdown lead to lower output; in migrant worker-dependent Malaysia, the infection rate of such workers is very high; as they are sent to Covid-19 centres, less labour is available.

In Malaysian plantations, seasonal workers who move between Indonesia and Malaysia are no longer able to come here, affecting production as fresh fruit bunches are not being harvested fast enough.

These bottlenecks will lower economic growth while prices rise due to the constraint in supply as well as the rally in worldwide commodity prices.

Not much can be done while the pandemic is raging and cross-border travel is not allowed. It has everything to do with effective control of the virus; we have to take responsibility and not adopt a “couldn’t care less” attitude in the fight against Covid-19.

While Covid-19 cases are surging here and elsewhere, China, which is relatively free of Covid-19, is producing goods for everyone else and its exports are booming, noted former Inter-Pacific Securities head of research Pong Teng Siew. (pic below)

“The acute shortage of labour in the Malaysian plantation industry has gone from bad to worse, and is now reaching a breaking point that will result in crop losses, as we have exhausted all possible known means of mechanising.

“We appeal for a procedure whereby guest workers can be safely brought into Malaysia; employers are willing to bear this cost, ’’ said United Plantations CEO Datuk Carl Bek-Nielsen.

These workers should be tested for Covid-19 before their departure from their home country, upon arrival, are held under quarantine, and only allowed to work if the final Covid-19 test is negative.

The palm oil industry, which is expected to generate RM72bil in export revenue in 2020, has seen significant crop losses; the average yield is expected to have declined, year-on-year, by 10% from 3.6 tonnes of crude palm oil per hectare.

There is also concern over a possible shortage of foreign workers in the construction sector, even though the government has substantially increased the allocation for development expenditure, said former RHB Research Institute chief Asean economist Peck Boon Soon.

A random survey shows companies focusing on safety procedures in the current movement control order (MCO) period to ensure there are no delays.

Projects of engineering and construction company Gamuda Bhd are progressing on schedule, having followed standard operating procedures (SOPs) since the beginning of the pandemic; it has an internal laboratory to screen and protect its workers resulting in early detection, quarantine and necessary treatment for Covid-19.

As construction falls under the sectors that are allowed to operate, property developer Mah Sing Group Bhd’s construction sites will continue to operate following stringent SOPs.

As Mah Sing’s new glove factory is starting anew in April, it will be able to ensure that its practices comply with the new guidelines set by the Human Resources Ministry and recommended best practices by the International Labour Organisation.

Mah Sing’s existing plastics division complies with the relevant labour laws and standards which include minimum pay, overtime hours and workers’ living conditions, said Mah Sing CEO Datuk Ho Hon Sang. (pic below)

While property development works can continue uninterrupted, Scientex Bhd, a flexible plastic packaging manufacturer and developer of affordable homes, is aware that financial institutions and government offices may be operating with a smaller workforce.

While this could result in delays for building plan and loan approvals, the new restrictions are being studied to ascertain any further impact, said Scientex property division chief operating officer Datuk Alex Khaw Giet Thye.

Timeliness in logistics, which is affected by container shortages, can impact the packaging operations of Scientex.

Being an export-oriented company, Scientex is working closely with its wide base of logistics partners to prioritise deliveries so as to minimise any potential impact, said Scientex chief operating officer, packaging division, Choo Seng Hong.

Classified as essential services, the packaging division of Scientex is able to operate fully in this MCO 2.0 period, and is optimistic of maintaining stable supply to its customers.

Condom maker Karex Bhd has taken steps to reduce volatility in oil prices that is affecting logistics fees lately.

Over the last two years, Karex has been moving its shipping terms with most of its customers from cost, insurance and freight (CIF) to free-on-board (FOB) terms.

In CIF terms, the seller is responsible for transporting the goods to the nearest port, loading them onto the ship and paying for the freight; in FOB terms, the seller is only responsible for taking the goods to the nearest port.

This helps Karex to mitigate any short-term impact from a shortage of containers, as distribution costs represent 10% of its total costs.

Karex is able to operate as it produces essential medical equipment, but costs will be incurred from labour issues and a wide range of supply chain disruptions.

While global supply chain issues such as container shortages and surge in freight surcharges have eased recently, cocoa manufacturer Guan Chong Bhd expects the impact to persist in the near term.

“The cocoa industry is also facing lower demand due to the Covid-19 situation in Europe, ’’ said Guan Chong managing director and CEO Brandon Tay.

But cocoa is widely consumed in many parts of the world and demand should be supported by a stronger second half in Europe, on recovering economies and roll-out of vaccines.

Guan Chong is planning forward to adhere to production and delivery schedules, in anticipation of this recovery in demand.

Science, technology and engineering company UWC, which is categorised as an essential economic sector, is anticipating strong demand especially from the semiconductor and life sciences segments.

“Despite the headwinds, we remain optimistic of our performance in 2021, ’’ said UWC Bhd deputy CEO Matin Ng.

Bringing down the rate of Covid-19 infections is key to our economic recovery; we must act quickly and find more ways to combat it.

Yap Leng Kuen is the former business editor of StarBiz. Views expressed here are the writer’s own.

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