Global supply chains buckle as virus variant and disasters strike
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[July 24, 2021] By
Jonathan Saul, Muyu Xu and Yilei Sun
LONDON/BEIJING (Reuters) -A new worldwide
wave of COVID-19. Natural disasters in China and Germany. A cyber attack
targeting key South African ports.
Events have conspired to drive global supply chains towards breaking
point, threatening the fragile flow of raw materials, parts and consumer
goods, according to companies, economists and shipping specialists.
The Delta variant of the coronavirus has devastated parts of Asia and
prompted many nations to cut off land access for sailors. That's left
captains unable to rotate weary crews and about 100,000 seafarers
stranded at sea beyond their stints in a flashback to 2020 and the
height of lockdowns.
"We're no longer on the cusp of a second crew change crisis, we're in
one," Guy Platten, secretary general of the International Chamber of
Shipping, told Reuters.
"This is a perilous moment for global supply chains."
Given ships transport around 90% of the world's trade, the crew crisis
is disrupting the supply of everything from oil and iron ore to food and
electronics.
German container line Hapag Lloyd described the situation as "extremely
challenging".
"Vessel capacity is very tight, empty containers are scarce and the
operational situation at certain ports and terminals is not really
improving," it said. "We expect this to last probably into the fourth
quarter – but it is very difficult to predict."
Meanwhile, deadly floods in economic giants China and Germany have
further ruptured global supply lines that had yet to recover from the
first wave of the pandemic, compromising trillions of dollars of
economic activity that rely on them.
The Chinese flooding is curtailing the transport of coal from mining
regions such as Inner Mongolia and Shanxi, the state planner says, just
as power plants need fuel to meet peak summer demand.
In Germany, road transportation of goods has slowed significantly. In
the week of July 11, as the disaster unfolded, the volume of late
shipments rose by 15% from the week before, according to data from
supply-chain tracking platform FourKites.
Nick Klein, VP for sales and marketing in the Midwest with Taiwan
freight and logistics company OEC Group, said companies were scrambling
to free goods stacked up in Asia and in U.S. ports due to a confluence
of crises.
"It's not going to clear up until March," Klein said.
MORE PAIN FOR AUTOMAKERS
Manufacturing industries are reeling.
Automakers, for example, are again being forced to stop production
because of disruptions caused by COVID-19 outbreaks. Toyota Motor Corp
said this week it had to halt operations at plants in Thailand and Japan
because they couldn't get parts.
Stellantis temporarily suspended production at a factory in the U.K.
because a large number of workers had to isolate to halt the spread of
the virus.
The industry has already been hit hard by a global shortage of
semiconductors this year, mainly from Asian suppliers. Earlier this
year, the auto industry consensus was that the chip supply crunch would
ease in the second half of 2021 - but now some senior executives say it
will continue into 2022.
An executive at a South Korea auto parts maker, which supplies Ford,
Chrysler and Rivian, said raw materials costs for steel which was used
in all their products had surged partly due to higher freight costs.
"When factoring in rising steel and shipping prices, it is costing about
10% more for us to make our products," the executive told Reuters,
declining to be named due to the sensitivity of the matter.
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Men stand on a vehicle on a flooded road following heavy rainfall in
Zhengzhou, Henan province, China July 23, 2021. REUTERS/Aly Song
"Although we are trying to keep our costs low, it has been very challenging.
It's just not rising raw materials costs, but also container shipping prices
have skyrocketed."
Europe's biggest home appliances maker, Electrolux, warned this week of
worsening component supply problems, which have hampered production. Domino's
Pizza said the supply-chain disruptions were affecting the delivery of equipment
needed to build stores.
U.S. AND CHINA STRUGGLE
Buckling supply chains are hitting the United States and China, the world's
economic motors that together account for more 40% of global economic output.
This could lead to a slowdown in the global economy, along with rising prices
for all manner of goods and raw materials.
U.S. data out Friday dovetailed with a growing view that growth will slow in the
last half of the year after a booming second quarter fueled by early success in
vaccination efforts.
"Short-term capacity issues remain a concern, constraining output in many
manufacturing and service sector companies while simultaneously pushing prices
higher as demand exceeds supply," said Chris Williamson, chief business
economist at IHS Markit.
The firm's "flash" reading of U.S. activity slid to a four-month low this month
as businesses battle shortages of raw materials and labor, which are fanning
inflation.
It's an unwelcome conundrum for the U.S. Federal Reserve, which meets next week
just six weeks after dropping its reference to the coronavirus as a weight on
the economy.
The Delta variant, already forcing other central banks to consider retooling
their policies, is fanning a new rise in U.S. cases, and inflation is running
well above expectations.
'WE NEED TO SUPPLY STORES'
Ports across the globe are suffering the kinds of logjams not seen in decades,
according to industry players.
The China Port and Harbour Association said on Wednesday that freight capacity
continued to be tight.
"Southeast Asia, India and other regions' manufacturing industry are impacted by
a rebound of the epidemic, prompting some orders to flow to China," it added.
Union Pacific, one of two major railroad operators that carry freight from U.S.
West Coast ports inland, imposed a seven-day suspension of cargo shipments last
weekend, including consumer goods, to a Chicago hub where trucks pick up the
goods.
The effort, which aims to ease "significant congestion" in Chicago, will put
pressure on ports in Los Angeles, Long Beach, Oakland and Tacoma, specialists
said.
A cyber attack hit South African container ports in Cape Town and Durban this
week, adding further disruptions at the terminals.
If all that were not enough, in Britain the official health app has told
hundreds of thousands of workers to isolate following contact with someone with
COVID-19 - leading to supermarkets warning of a short supply and some petrol
stations closing.
Richard Walker, managing director of supermarket group Iceland Foods, turned to
Twitter to urge people not to panic buy.
"We need to be able to supply stores, stock shelves and deliver food," he wrote.
(Additional reporting by Anna Ringstrom in Stockholm, Lisa Baertlein in Los
Angeles, Hilary Russ in New York, Joe White in Detroit, Lucia Mutikani and
Howard Schneider in Washington and Heekyong Yang in Seoul;Editing by Simon Webb,
Dan Burns and Pravin Char)
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