Global supply chain problems worsen, threatening economic recovery

Supply shocks are already showing signs of stifling the recovery in some regions.

Part of the problem is a global economy that is out of sync with the pandemic, the restrictions and the recovery. Factories and retailers in Western economies that have largely emerged from lockdowns are hungry for finished products, raw materials and components from long-standing suppliers in Asia and elsewhere. But many countries in Asia are still in the grip of lockdowns and other coronavirus-related restrictions, limiting their ability to meet demand.

Meanwhile, global labor shortages, often caused by people leaving the workforce during the pandemic, are creating new obstacles in the way for producers.

Bottlenecks are expected to restrain manufacturing output for much of next year, hurting a sector that had until recently fueled the global recovery. Global industrial production topped its pre-crisis level in early 2021, but has since stagnated, according to the Kiel Institute for the World Economy, a German think tank. It recently lowered its forecast for global economic growth this year to 5.9% from 6.7%, in part due to supply chain issues.

Nodes in the supply chain have helped push inflation to decades-long highs in the United States and parts of Europe, weighing on consumer spending. High inflation rates are already putting pressure on central banks, including the Federal Reserve, to start scaling back their aggressive stimulus policies in the event of a pandemic, another headwind for global growth.

It is already too late to save the entire Christmas retail season in many cases, as overwhelmed global transportation networks limit supply, right down to home decor. “If I can give consumers any advice right now, it’s to find and buy your Christmas tree early,” said Jami Warner, executive director of the American Christmas Tree Association.

At the heart of the global stalemate is China, the world’s largest trading nation.

Arriving ships often need to be quarantined for a week or more before being allowed to dock. Disruptions in customs and port services add to the delays. The longer ships wait on arrival at Chinese ports, the longer it takes them to return from China to the rest of the world, while waiting for electronics, clothing and toys made in China.

Earlier this year, shipping goods from China to South America cost more than five times the pandemic trough last year, according to data from the United Nations Conference on Trade and Development. Freight rates on the busiest China-North America route have more than doubled.

Beyond China, Covid-related plant closures in Malaysia have affected the supply of chips to German automakers in a semiconductor market already hit by blackouts in Texas, Japan and Taiwan. A lockdown in Vietnam has created problems for Australian importers, supply chain specialists say.

In Indonesia, mining companies want more trucks to meet the growing global demand for coal and minerals. Still, the waiting list for deliveries of new trucks is nine months, according to producers. Their own supply chain issues make it more difficult to deliver fuel and materials that would help solve supply issues elsewhere, reinforcing bottlenecks.

Strikes and cases of Covid-19 among port workers in Australia have reduced operations. Passenger flights to the country, which were once an option for air cargo shippers, are still mostly on hold.

“If he wasn’t on the water four weeks ago, he won’t be here for Christmas,” said Marcus Carmont, executive director of TMX Global, a supply chain consultancy in Melbourne. prison card to use a plane is not really a lever that you can pull.

China has added to the stress with limits on electricity consumption triggered by efforts to tackle climate change. The northwestern province of Shaanxi is one of the world’s largest producers of magnesium, a relatively inexpensive mineral that electric vehicle battery makers have increasingly turned to as demand for electric vehicles is increasing.

Last month, the economic planner at one of Shaanxi’s magnesium hubs ordered many producers to halt or cut production to meet the region’s 2021 targets to limit energy use, according to one. trader and Chinese media accounts of a government opinion. The domestic price of magnesium in China was more than 60% higher in August than in January, according to industry data.

The shortage of magnesium is one reason among many that can prevent consumers from finding the car they want anywhere in the world.

Noriyuki Umezawa, manager of a Mazda dealership in the Tokyo suburb of Kashiwa, said he told customers they should wait at least four to five months for delivery of popular models such as the CX crossover sport utility vehicle. -8.

More people have shown interest in buying a car since the country lifted the state of emergency on October 1 thanks to a drop in Covid-19 cases, Umezawa said. “Now we have no more cars to sell,” he said.

Rakuten Mobile, a unit of Japanese e-commerce company Rakuten Group Inc. that is trying to establish itself as a national operator of mobile phone services, had hoped to offer improved service this fall. But 10,000 of its base stations that would provide fast data downloads cannot be activated because the company cannot connect the chips to their antennas, a spokeswoman said.

The German auto industry, which accounts for a large chunk of the country’s industrial output, has put workers on leave throughout the year as the supply of chips fluctuated. Automakers have prioritized the production of high-margin vehicles in an effort to mitigate the impact on profits due to lost sales.

AlixPartners, a global industry consultant, said last month that the global auto industry would lose 7.7 million vehicles globally, nearly 10% of production expected in 2021, due to the shortage of fleas. The lost production and sales are expected to cost the global auto industry $ 210 billion in lost revenue this year, he said.

Automakers are also facing resin and steel supply disruptions, says Mark Wakefield of AlixPartners’ automotive and manufacturing practice.

In July, sales of new cars in France fell 35%, the largest drop in Europe, while sales fell 25% in Germany, 29% in Spain and 19% in Italy. In the UK, new car sales fell 30% in July. The decline continued in August when new car sales in Europe fell 18% to 724,710 vehicles.

“We are not limited by demand, we are limited by supply,” said Ola Källenius, CEO of Daimler AG at the start of September, adding that the chip supply squeeze would affect third quarter sales and occur. feel until 2023.

The German economy is more dependent on the manufacturing sector than many of its European peers. Industrial production there fell 4% in August from the previous month, leaving production 9% below its pre-pandemic level, the federal statistics agency said on Thursday. The weakness, he said, was due to a drop in the production of vehicles and vehicle parts.

Supply constraints for manufacturers are squeezing margins and driving up consumer prices, economists say. More than a quarter of companies have had to reduce or even stop production, according to a recent survey by the Association of German Chambers of Commerce and Industry.

Sweden’s economy contracted 3.8% in August from the previous month, pushing output below its pre-pandemic level, according to data from Statistics Sweden.

Manufacturing output fell in the month Volvo had to shut down auto production due to the semiconductor shortage. “The recovery in Sweden has reached its peak and the short-term outlook is not as optimistic as it was a few months ago,” said David Oxley, economist at Capital Economics.

In the UK, Glasgow Distillery Co. was on the verge of launching its long-standing Scotch whiskey in the US when supply chain issues began to affect almost every part of its business, forcing it to postpone the move.

The whiskey maker is finding it much harder to stock up on bottles, labels and boxes on time, essential for packaging its single malts, according to Liam Hughes, its co-founder. What took six weeks to secure can now sometimes take six months, and the prices are higher.

“Some of our suppliers have notified us of increases of 10%,” he said.

When the Glasgow-based company can stock up, it has to wait much longer for transport to the distillery. Once the bottles are ready, global shipping congestion makes it up to five times more expensive for customers to take them from Britain to the United States, Mr Hughes said.

As of Thursday, 497 large container ships were waiting to dock outside ports in Asia, Europe and North America, and the delay of ships arriving at US and Canadian ports from the Far East fell from 2 p.m. in June 2020 to almost 13 days in September, according to eeSea, which provides data on the container market.

This summer, T&G Global Ltd., one of Australasia’s largest fruit suppliers, had containers of apples waiting up to four weeks in New Zealand ports to find a ship to take them to Los Angeles. The company typically ships about 800 40-foot containers of apples to the United States per year.

With container ships being held up outside ports, T&G shifted some of its cargo to reefer carriers, which the company had to charter with other local exporters. These reefer vessels can dock in parts of a port that container ships do not, allowing them to avoid some of the long delays.

“This is not good and will have to wait until the end of next year to resolve it,” said Simon Beale, logistics manager at T&G.

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