Saturday, October 9, 2021

Global Supply-Chain Problems Escalate, Threatening Economic Recovery

At WSJ, "Component shortages, surging prices of raw materials and transportation backups compound the bottlenecks":

Global supply-chain bottlenecks are feeding on one another, with shortages of components and surging prices of critical raw materials squeezing manufacturers around the world.

The supply shocks are already showing signs of choking off the recovery in some regions.

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

Meanwhile, global labor shortages, often the result of people leaving the workforce during the pandemic, are throwing further obstacles in the way of producers.

The bottlenecks are forecast to constrain manufacturing output well into next year, hurting a sector that had until recently powered the global recovery. Global industrial output rose above its precrisis 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 world economic growth this year to 5.9% from 6.7%, in part due to supply-chain issues.

Supply-chain knots have helped push inflation to multidecade highs in the U.S. and parts of Europe, weighing on consumer spending. Elevated inflation rates are already putting pressure on central banks, including the Federal Reserve, to start scaling back their aggressive pandemic stimulus policies, a further headwind to global growth.

It is already too late to save all of the Christmas retail season in many cases, as overwhelmed world-wide transportation networks limit supply—down to the home d├ęcor. “If I can give one piece of advice to consumers right now, it is 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 gridlock is China, the world’s largest trading nation.

Arriving ships often must quarantine for a week or more before they are allowed to dock. Disruptions to customs and port services add to delays. The more ships wait on the inbound side at Chinese ports, the longer it takes for them to start out again from China to the rest of the world, waiting for Chinese-made electronics, clothing and toys.

Earlier this year it cost more than five times as much to ship goods from China to South America compared with last year’s pandemic low, according to U.N. Conference on Trade and Development data. Freight rates on the more heavily trafficked China-North America route more than doubled.

Beyond China, Covid-related factory closures in Malaysia have hit chip supplies to German car makers in a semiconductor market already hit by outages in Texas, Japan and Taiwan. A lockdown in Vietnam has created problems for Australian importers, say supply-chain specialists.

In Indonesia, mining companies want more trucks to feed the world’s rising demand for coal and minerals. Yet the waiting list for new truck deliveries is nine months, producers say. Their own supply-chain problems make it harder to deliver the fuel and materials that would help resolve supply problems elsewhere, reinforcing the bottlenecks.

Strikes and Covid-19 cases among port workers in Australia have curtailed operations. Passenger flights to the country, which used to be an option for air cargo shippers, are still mostly halted.

“If it wasn’t on the water four weeks ago, it’s not going to be here for Christmas,” said Marcus Carmont, executive director at TMX Global, a supply-chain consulting firm in Melbourne. “The get-out-of-jail card to use a plane is not really a lever you can pull.”

China has added to the stresses with limits on electricity usage triggered by efforts to address climate change. The northwestern province of Shaanxi is one of the world’s largest producers of magnesium, a relatively low-cost mineral to which electric-vehicle battery makers have increasingly turned as demand for EVs rises.

In Indonesia, mining companies want more trucks to feed the world’s rising demand for coal and minerals. Yet the waiting list for new truck deliveries is nine months, producers say. Their own supply-chain problems make it harder to deliver the fuel and materials that would help resolve supply problems elsewhere, reinforcing the bottlenecks.

Strikes and Covid-19 cases among port workers in Australia have curtailed operations. Passenger flights to the country, which used to be an option for air cargo shippers, are still mostly halted.

“If it wasn’t on the water four weeks ago, it’s not going to be here for Christmas,” said Marcus Carmont, executive director at TMX Global, a supply-chain consulting firm in Melbourne. “The get-out-of-jail card to use a plane is not really a lever you can pull.”

China has added to the stresses with limits on electricity usage triggered by efforts to address climate change. The northwestern province of Shaanxi is one of the world’s largest producers of magnesium, a relatively low-cost mineral to which electric-vehicle battery makers have increasingly turned as demand for EVs rises.

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

The magnesium shortage is one reason among many that may prevent consumers from finding the car they want around the world...

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