Supply chain chaos hits global growth and could worsen – .

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Supply chain chaos hits global growth and could worsen – .


Cargo trucks parked at the Port of Los Angeles in Los Angeles, California, United States on Wednesday, October 13, 2021.
Kyle Grillot | Bloomberg | Getty Images
Thanks to the rollout of coronavirus vaccines, the global economy is slowly starting to emerge from the pandemic.
But Covid-19 has left in its wake a very destructive economic problem: the disruption of global supply chains.

The rapid spread of the virus in 2020 led to widespread industry shutdowns around the world, and with most of us stranded, consumer demand and industrial activity declined.

With the lifting of the blockages, demand exploded. And the supply chains that were disrupted during the global health crisis still face enormous challenges and are struggling to bounce back.

This has led to chaos for manufacturers and distributors of goods who cannot produce or supply as much as before the pandemic for a variety of reasons, including labor shortages and lack of key components and raw materials.

Different parts of the world have experienced supply chain issues which have also been exacerbated for different reasons. For example, power shortages in China have affected production in recent months, while in the UK, Brexit has been a major driver of truck driver shortages. The United States also faces a shortage of truckers, as does Germany, the former also experiencing a large amount of backlog at its ports.

Read more: As UK battles food, energy and work crises, Boris Johnson promises change

The situation “will get worse”

Unfortunately, experts like Tim Uy of Moody’s Analytics say supply chain problems “will get worse before they get better.”
“As the global economic recovery continues to accelerate, what is increasingly evident is how it will be hampered by the supply chain disruptions that are now appearing around every corner,” said Uy in a report last Monday.

“Border controls and mobility restrictions, the unavailability of a global vaccine pass and pent-up demand to be stuck at home have combined for a perfect storm where global production will be hampered as deliveries are not made on time, costs and prices will increase, so global GDP growth will not be as robust, ”he said.

“Procurement is likely to catch up for a while, especially since there are bottlenecks at every link in the supply chain – labor certainly, as mentioned above. , but also containers, maritime transport, ports, trucks, railways, air and warehouses. “

A sea of ​​freight trucks wait in long lines to enter the Port of Los Angeles as the port is scheduled to start operating 24 hours a day on Wednesday, October 13, 2021 in San Pedro, California.

Jason Armond | Los Angeles Weather | Getty Images

Supply chain bottlenecks – congestion and blockages in the production system – have affected various sectors, services and goods ranging from shortages of electronics and automobiles (with problems exacerbated by the well-known shortage of chips semiconductors) to the supply problems of meat, medicines and household products.

Amid rising consumer demand for scarce goods, freight rates for goods from China to the United States and Europe have skyrocketed, while a shortage of truck drivers in the latter two regions has exacerbated the problem of transporting goods to their final destination. , and led to high prices once these products hit store shelves.

The pandemic has only underscored how global supply chains can be interconnected and easily destabilized.

At best, global supply chains reduce costs for businesses, due to the often lower labor and operating costs associated with making the products they want, and can drive innovation and competetion.

But the pandemic has highlighted deep weaknesses in these networks, with disruptions in one part of the chain having a ripple effect on all parts of the chain, from manufacturers to suppliers and distributors with disruptions ultimately affecting customers. consumers and economic growth.

Supply chain crisis affects growth

As economies recover, the supply chain crisis has become one of the biggest challenges governments face today. Citizens tired of Covid are eager to spend again but find products absent or much more expensive.

The problem is also looming on the horizon ahead of Christmas and last week White House officials warned Americans could face higher prices and more sparse shelves this holiday season, the Biden administration. trying to alleviate blockages in ports.

Read more: White House plan aims to help major West Coast ports stay open 24/7 to ease supply chain bottlenecks

China and Europe are also experiencing growth challenges due to supply chain issues. On Monday, China announced that its GDP in the third quarter saw disappointing growth of 4.9% compared to the previous quarter, with industrial activity increasing less than expected in September (up 3.1% below 4 , 5% expected by Reuters) – with supply chain problems contributing to the slowdown in activity.

“Manufacturing has been hit hard by supply chain disruptions due to Covid, with some port operations impacted in the third quarter of 2021 and chip shortages continued into the quarter,” Iris Pang noted Monday, Chief Economist of Greater China at ING.

She said that “supply chain disruptions are expected to last as freight rates are still high and chip shortages are still a critical issue for industries such as equipment, automobiles and telecommunications devices.” .

Last week, Germany’s top economists warned that “supply bottlenecks will continue to weigh on manufacturing output for the time being” and were likely to hamper the growth of Germany’s largest economy. Europe, focused on exports.

Impacted benefits

Experts note that the profits are already starting to show the impact of the supply chain crisis. Invesco’s global market strategist Kristina Hooper noted last week that “supply chain fears are brewing« with a number of US companies reporting warnings of rising costs from supply chain disruptions and potentially lower profits.

Hooper believed that some of the factors contributing to supply chain problems, such as labor shortages, would be resolved sooner than others. But she said the problem could have longer-term effects on some sectors.

“No matter where the companies are located, they are likely to experience supply chain disruptions, higher input costs and problems finding labor,” she said last Thursday in a note.

“However, some businesses will be much more affected than others… An increase in costs will usually have the greatest impact on low-margin businesses, which tend to be found in industries such as transportation, retail and business. general, construction and automotive. Companies that are expected to be the least affected are those with large profit margins, limited raw material costs and a reduced workforce. bond yields rise. “

“Finances can be the star in this environment, especially since these companies would favor higher returns. Another differentiator may be the investment companies have made in technology to increase productivity. “

Hooper noted that some shortages, of semiconductors in particular, could improve soon, with projections for a return to normal production levels by the second quarter of 2022. “However, more general disruptions in the supply chain are expected to continue in the shorter term, especially if there are additional waves of Covid, ”she added.

“In general, supply chain disruptions and higher input costs seem likely to be relatively transient… And so, for me, I’ll be very attentive to the earnings season this quarter, but I’ll be more concerned about the directions of companies for the fourth quarter and beyond – particularly how long they expect these conditions to last, ”she said.

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