Omicron pushes Hong Kong’s supply chain to the brink of collapse

Cathay Pacific has cancelled hundreds of flights. Cargo capacity could drop below one-fifth of pre-pandemic levels. Logistics costs may surge by 40 per cent within three weeks. Importers expect the price of fruit to rise by 10 per cent.

Pursuing a COVID-19 zero strategy, Hong Kong has shut bars, gyms and cinemas. At the same time, an already-fractured supply chain for a city that imports most of its goods has reached a breaking point, with businesses suffering delays in deliveries of staples such as berries and yoghurt and of premium seafood and cheeses.

The threat of an omicron-driven surge has spooked Hong Kong, where the vaccination rate is among the lowest for developed economies. Though officials have found only dozens of cases in the community so far, they are tracking at least three separate transmission chains.

Amid fear of the omicron variant, the government has scrapped aircrew quarantine exemptions it was previously giving, forcing Cathay to cut cargo flights. The airline will operate only about 20 per cent of its pre-pandemic capacity this month because of a lack of manpower.

Passenger flights were also banned from eight countries, including Australia, the US and the UK, further reducing cargo capacity.

Those two separate blows are creating “a severe shortage of freight space,” said Gary Lau, chairman of the Hong Kong Association of Freight Forwarding & Logistics.

Businesses heavily dependent on imports bear the brunt of the disruptions. Suppliers expect shortages of everything from aubergine to lobster. Flowers from Europe for the upcoming lunar new year could also be in short supply, as well as fruits and vegetables flown in from the UK and the Netherlands.

Hong Kong’s retail and restaurant sectors, which had just started to recover after months of prior restrictions, may now miss a peak spending window during the Chinese holiday season.