Global supply chains collapse as virus variants and disasters strike


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

The events have conspired to push global supply chains to a limit and threaten 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, causing many nations to cut off land access for seafarers. This has left captains unable to rotate tired crews and around 100,000 seafarers stranded at sea in a look back at 2020 and the height of lockdowns.

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

“This is a dangerous moment for global supply chains.”

With ships transporting around 90% of world trade, the occupation crisis disrupts supplies of everything from oil and iron ore to food and electronics.

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

“Ship capacities are very scarce, empty containers are scarce and the operating situation in certain ports and terminals is not really improving,” it said. “We think this will likely continue into the fourth quarter – but it’s very difficult to predict.”

Meanwhile, fatal floods at economic giants China and Germany have further disrupted global utilities, which had yet to recover from the first wave of the pandemic, putting the trillion-dollar economic activity that depends on them at risk.

The Chinese floods are restricting the transport of coal from mining regions such as Inner Mongolia and Shanxi, the state planner said, just as power plants need fuel to meet peak demand in the summer.

In Germany, road freight traffic has slowed significantly. In the week of July 11, the volume of late deliveries in the course of the disaster increased by 15% compared to the previous week, according to data from supply chain tracking platform FourKites.

Nick Klein, VP of sales and marketing in the Midwest for Taiwanese freight and logistics company OEC Group, said that due to a coexistence of crises, companies are anxious to release goods stacked in Asia and US ports.

“It won’t be cleared up until March,” said Klein.

MORE PAIN FOR CAR MANUFACTURERS

The manufacturing industry is wavering.

Car manufacturers, for example, are again forced to stop production due to disruptions from COVID-19 outbreaks. Toyota Motor Corp said this week it had to shut down plants in Thailand and Japan because they couldn’t get parts.

Stellantis has temporarily suspended production at a factory in the UK because many workers had to isolate themselves to stop the virus from spreading.

The industry was hit hard earlier this year by a global shortage of semiconductors, mainly 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 executives say it will last until 2022.

A senior executive at a South Korean auto parts maker that supplies Ford, Chrysler and Rivian said the raw material costs for steel, which has been used in all of their products, rose in part due to higher freight costs.

“Taking into account rising steel and shipping prices, the production of our products costs about 10% more,” the manager told Reuters and declined to be named due to the sensitivity of the matter.

“Although we’re trying to keep our costs down, it was a big challenge. It’s just not the rise in raw material costs, the prices for container transport have also skyrocketed.”

Europe’s largest household appliance manufacturer Electrolux (ELUXb.ST) warned this week of worsening delivery problems for components that have hindered production. Domino’s Pizza (DPZ.N) said the supply chain disruptions are having an impact on the delivery of equipment needed to build stores.

BATTLE OF THE USA AND CHINA

The fragile supply chains hit the United States and China, the world’s economic engines that together account for more than 40% of global economic output. This could lead to a slowdown in the global economy and rising prices for goods and raw materials of all kinds.

US data released on Friday coincided with growing sentiment that growth will slow in the final half of the year, after a booming second quarter fueled by early successes in vaccination efforts.

“Short-term capacity issues remain a problem as they constrain the output of many manufacturing and service companies while driving prices up as demand outstrips supply,” said Chris Williamson, chief economist at IHS Markit.

The company’s “flash” figure for US operations slid to a four-month low this month as companies grapple with raw material and labor shortages that fuel inflation. Continue reading

It’s an unwelcome conundrum for the Federal Reserve, which is meeting next week just six weeks after lifting its reference to the coronavirus as a drag on the economy. Continue reading

The delta variant, which is already forcing other central banks to revise their policies, is fueling a new surge in US cases and inflation is well above expectations.

“WE HAVE TO LOVE BUSINESS”

According to industry players, ports around the world are suffering from traffic jams that have not occurred for decades.

The China Port and Harbor Association announced on Wednesday that freight capacities were still tight.

“Southeast Asia, India and other regions’ manufacturing industries are experiencing an epidemic rebound, causing some orders to flow into China,” she added.

Union Pacific (UNP.N), one of two major railroad companies that carry cargo inland from ports on the U.S. west coast, last weekend imposed a seven-day suspension of cargo shipments, including consumer goods, to a hub in Chicago where trucks are carrying the goods pick up .

Efforts aimed at reducing “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, causing further disruptions at the terminals. Continue reading

As if all of that wasn’t enough, the UK’s official health app has asked hundreds of thousands of workers to isolate themselves after coming in contact with someone with COVID-19 – resulting in supermarkets warning of a shortage and some gas stations closing.

Richard Walker, general manager of Iceland Foods, a supermarket group, turned to Twitter to urge people not to panic.

“We need to be able to ship to stores, store shelves, and deliver groceries,” he wrote.

Additional coverage 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

Our Standards: The Thomson Reuters Trust Principles.

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