Global supply chains collapse as virus variant and disasters strike

LONDON / BEIJING, July 23 (Reuters) – A new global wave of COVID-19. Natural disasters in China and Germany. A cyber attack targeting the main South African ports.

Events conspired to drive global supply chains to a breaking point, threatening the fragile flow of raw materials, parts and consumer goods, according to companies, economists and shipping experts.

The Delta variant of the coronavirus has devastated parts of Asia and prompted many countries to cut off access to land for sailors. This left the captains unable to turn tired crews and around 100,000 sailors stranded at sea beyond their stays in a flashback to 2020 and the height of the blockages.

“We are no longer on the cusp of a second crew change crisis, we are one,” Guy Platten, secretary general of the International Chamber of Shipping, told Reuters.

“This is a perilous time for global supply chains.”

Since ships carry around 90% of global trade, the crew crisis is disrupting the supply of everything from oil and iron ore to food and electronics.

German container company Hapag Lloyd (HLAG.DE) described the situation as “extremely difficult”.

“The capacity of ships is very limited, empty containers are scarce and the operational situation in some ports and terminals is not really improving,” he said. “We expect this to probably last until the fourth quarter – but it’s very difficult to predict.”

Meanwhile, deadly floods in economic giants China and Germany further severed global supply lines that had not yet recovered from the first wave of the pandemic, jeopardizing billions of dollars in economic activity that depends on it.

Flooding in China is reducing the transport of coal from mining regions such as Inner Mongolia and Shanxi, according to the state planner, just as power plants need fuel to meet peak summer demand.

In Germany, road freight transport has slowed down sharply. During the week of July 11, as the disaster unfolded, the volume of late shipments increased 15% from the previous week, according to data from the supply chain tracking platform FourKites. .

Nick Klein, vice president of sales and marketing in the Midwest with Taiwanese freight and logistics company OEC Group, said companies were rushing to free cargo piled up in Asia and at 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 in shock.

Automakers, for example, are once again being forced to shut down production due to disruptions caused by COVID-19 outbreaks. Toyota Motor Corp said this week it had to shut down operations at factories in Thailand and Japan because they couldn’t get parts.

Stellantis has temporarily suspended production at a factory in the UK because large numbers of workers have had to self-isolate to stop the spread of the virus.

The industry has already been hit hard by a global semiconductor shortage this year, mostly from Asian suppliers. Earlier this year, the auto industry consensus was that the chip supply crisis would ease in the second half of 2021 – but now some senior executives say it will continue until 2022.

An executive at a South Korean auto parts maker, which supplies Ford, Chrysler and Rivian, said raw material costs for the steel used in all of their products had risen in part due to rising costs of transport.

“Taking into account the rising prices of steel and shipping, it costs us around 10% more to manufacture our products,” the executive told Reuters, declining to be named due to sensitivity. of the question.

“Although we were trying to keep our costs low, it was very difficult. It’s just not about increasing the costs of raw materials, but the prices of container shipping have also skyrocketed.”

Europe’s largest home appliance maker Electrolux (ELUXb.ST) this week warned of worsening component supply issues, which have hampered production. Domino’s Pizza (DPZ.N) said supply chain disruptions were affecting the delivery of equipment needed to build stores.

AMERICAN STRUGGLE AND CHINA

Faulty supply chains are hitting the United States and China, the global economic engines that together account for more than 40% of global economic output. This could lead to a slowdown in the global economy, as well as a rise in the prices of all kinds of goods and raw materials.

US data released on Friday dovetailed with a growing view of slower growth in the last half of the year after a booming second quarter fueled by early successes in vaccination efforts.

“Short-term capacity issues remain a concern, limiting output at many manufacturing and service companies while pushing up prices as demand outstrips supply,” said Chris Williamson, chief economist at IHS Markit.

The firm’s “flash” reading of US activity slipped to a four-month low this month as companies tackle commodity and labor shortages, which are fueling inflation . Read more

It’s an unfortunate conundrum for the U.S. Federal Reserve, which is meeting next week just six weeks after dropping its reference to the coronavirus as a burden on the economy. Read more

The Delta variant, already forcing other central banks to consider reshuffling their policies, is fueling a further rise in US cases, and inflation is far exceeding expectations.

“WE NEED TO SUPPLY THE STORES”

Ports around the world are experiencing traffic jams not seen in decades, according to industry players.

The China Ports and Ports Association said on Wednesday that cargo capacity remained limited.

“The manufacturing industry in Southeast Asia, India and other regions is hit by a rebound in the epidemic, which has prompted some orders to flow to China,” he said. he adds.

Union Pacific (UNP.N), one of the two major rail operators that move freight from ports on the west coast of the United States to the interior, has imposed a seven-day suspension on freight shipments, including consumer goods, to a Chicago hub where trucks pick up the goods.

The effort, which aims to alleviate “significant congestion” in Chicago, will put pressure on the ports of Los Angeles, Long Beach, Oakland and Tacoma, experts said.

A cyber attack hit South African container ports in Cape Town and Durban this week, adding further disruption to the terminals. Read more

If all that wasn’t enough, in Britain, the official health app has told hundreds of thousands of workers to self-isolate after contact with someone with COVID-19 – which has led supermarkets to to warn of a supply shortage and to close some gas stations.

Richard Walker, managing director of supermarket group Iceland Foods, took to Twitter to urge people not to panic.

“We need to be able to stock 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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