Something is not right in globalization when a car buyer must wait nine months to receive his vehicle; when container-laden ships queue for more than a week in the ports of Rotterdam, Antwerp or Los Angeles. Something happens when in the toy industry there are companies that do not know if they will have their products in time for the lucrative Christmas campaign. When auto plants stop because they don’t have semiconductors and works are delayed due to a shortage of wood, aluminum or steel. Even the president of the United States, Joe Biden, has gone down to the sand to tell distributors like Fedex and UPS that sleep is a luxury that they cannot afford in the middle of the crisis of the supply chains and must deliver 24 hours, seven days to the week, to alleviate the monumental traffic jam of accumulated goods in warehouses and ships.
World trade, a logistical success for decades, has been knocked out by the pandemic for 20 months. First was the closure of borders and factories. Lately, an unaffordable demand in a context of interruptions in the factories due to specific infections, the alarming shortage of chips, an increase in savings due to public stimuli that is going to stop the purchase of physical goods due to the stoppage of services, the risky dependence on China, the lack of truckers and a general increase in prices due to the rising prices of energy, raw materials and container transport.
In this scenario, the first chants of deglobalizing withdrawal are already sounding, with Emmanuel Macron as the leader of the reindustrializing choir thanks to a 30,000 million euro plan to turn France into a leading country in innovation. The word sovereignty is back in fashion after decades of relocations to make more for less on the back of cheap Asian labor. But despite the severity of the supply crisis, China will not cease to be the world’s factory overnight. It is something slower and more subtle: the EU has not forgotten the chaotic arrival of Chinese planes to supply Europe with masks, and wants to be self-sufficient at least in essential areas such as health. Nor are the shelves going to dawn empty: in the midst of an atmosphere of strong competition, those goods that take months to be available again will be replaced by others on the shelves.
The mess, in any case, is colossal. Not to completely derail the recovery, but to detract from the momentum. The half dozen sources consulted agree that it will probably end sometime in 2022. They do not agree if at the beginning or at the end. It is not much clearer to the World Trade Organization, which uses the vague formulation of “several months”, although more and more pools are postponing normalization to 2023.
Fernando Gil, general manager at BSH Electrical Appliances – part of the Bosch group – and president of APPLiA, the sector’s employer’s association, is familiar with the problem. “Many large electronic devices like washing machines, refrigerators and ovens have components that come from China to be assembled in the West. And the closure of factories, the delay in shipping due to the lack of containers and bottlenecks in the ports have made them scarce ”, he summarizes. To manufacture a single washing machine, they have suppliers from Spain, Morocco, Poland, Turkey, China, Japan and Mexico, among others. “But if you’re missing the chip from Taiwan, it doesn’t matter whether it’s 20 countries or 30. The herd always goes at the speed of the slowest buffalo.”
In his opinion, it is necessary to relocate, although sometimes the borders are blurred. “If you hire a supplier from Zaragoza and he opens a factory in China to save costs, is it Spanish or Chinese?” The lack of components is delaying the production of certain models by up to a year, but for that there is a more extensive catalog. “People need a washing machine. If they don’t have what they want, they buy a similar one ”, concludes Gil, who has detected a change in habits. “In my sector there has been the effect of going back to the cave. Because the pandemic has lived so much at home, people have become used to spending a lot of time in it and have realized that the mattress, television and oven are old. And since there have been no options for spending on hotels, travel or fashion, they are spending a lot on improving the equipment of the homes ”.
The manager is aware that the phenomenon goes much further: aware of the extent of breakages in stock, has ordered a year before needing the company car that will replace the current one. And although it may seem like it, it is not an excess of zeal. Nieves Benito, head of Fundamental Research at Santander AM, believes that the automotive industry is the most affected by the supply crisis, especially due to the lack of chips. The Renault brand alone estimates that it will stop manufacturing 500,000 vehicles this year, bringing the global figure into the millions. Manufacturers have also had to adapt to both the strict regulation of polluting emissions and the sudden awakening of demand, driven by consumers who in certain cases have moved their residence outside of the big cities and prioritize the individual vehicle over public transport for the virus. “The result has been clear: we find vehicle inventories at a minimum, waiting lists and car prices on the rise, so the pressure has also transferred to the world of pre-owned. The delivery of new vehicles is being delayed and, depending on the brand, it can mean a wait of up to nine months ”, he points out.
Juan Sánchez, a 65-year-old retiree living in Madrid, has personally verified this. Every four years he exchanges his Mercedes for another thanks to a contract of renting with the German manufacturer. This year he heard about the chip crisis in June and went straight to the dealership to request a renewal early. “Good thing I did, because it doesn’t come for another eight months. They will have to extend the renting of the current one, if not, I am left without a car ”, he affirms with amazement.
On the supply side, the lack of chips is translating into factory shutdowns for weeks. “This is something that we will surely continue to see in 2022. Semiconductor producers are focused on higher-margin chips, such as those installed in electronics, and less on those installed in cars,” adds Benito. Sources from the Anfac employers’ association add to the perfect storm the rising cost of raw materials such as steel or oil, as well as the increase in electricity prices, which affects the production costs of cars manufactured in Spain.
The examples of supply problems are multiple, from electronic cigarettes, to paper or game consoles such as the PlayStation 5, the jewel in Sony’s crown, practically unobtainable for months due to the shortage of chips. In the textile sector, very present in Southeast Asia, Nike has been one of the great victims. 51% of its sneakers leave Vietnam, and due to the increase in infections, the Government closed the factories for several weeks between July and September, leaving the North American brand without some 80 million pairs.
Eduardo Zamácola, president of the Spanish textile association Acotex, calculates that the cost of the container has multiplied by ten and the waiting time has doubled. “That’s when it doesn’t happen that someone pays more and they take your container off the ship,” he says. He acknowledges that the situation generates uncertainty among the brands, which as alternatives have transferred orders by plane – more expensive – and have relocated part of the production that until now left Southeast Asian countries such as Vietnam, Cambodia or Laos. Many textile companies decided to settle there because of its low costs, but the supply crisis calls into question that logic. The return has advantages and disadvantages: on the one hand, it is more expensive, but on the other, employment is created in countries that, like Spain, have lost a large part of their industrial fabric, and manufacturing at home gives companies more flexibility because they are not obliged to do so wholesale. “You can make 700 units of a red sweater and test if it works, instead of 2,000 in Asia that if they do not succeed end up in the sales,” says Zamácola.
A survey by the Spanish construction employers’ association (CNC) of 300 companies in the sector reveals that three out of four have suffered shortages or unusual delays in the last three months. The construction of new homes in the US fell by 1.6% in September due to the supply crisis, higher prices of raw materials and the lack of workers. Swedish furniture giant Ikea doesn’t come off unscathed either. “We are focused on ensuring availability in our best-selling products and guaranteeing that the most relevant of the season are available,” says a spokeswoman for the firm, who acknowledges that availability “may vary between different markets and even between retail stores. the same country ”.
With Christmas just around the corner, there are even those who wonder if gifts are in danger. José Antonio Pastor, head of the Spanish Association of Toy Manufacturers, reassures: the high competition guarantees that if a toy is not available, another will take its place. Of course, some firms will accuse not being able to sell models that otherwise would have been a success. Pastor explains that Spain has the second largest industry after Germany, but imports raw materials, components and finished toys for more than 1 billion euros a year, the majority from China. The lack of containers is taking its toll. “If a container used to cost us two or three thousand dollars, now we pay more than 15,000. There are delays of eight or nine weeks, and in the worst case you run out of space and your products do not leave the port ”.
Fuentes de Anged, the employers’ association of large distribution companies -which has among its associates giants such as Carrefour, El Corte Inglés or MediaMarkt-, points out that the sector, aware of the global logistics earthquake, has planned the longed-for campaign longer than usual Christmas, where a strong reactivation of consumption is expected after a dismal year and a half. “If there is no specific product, there will be 10 or 12 brands to replace it,” they say.
Shipping companies and semiconductor firms, the winners
Semiconductor manufacturers and shipping companies swim with ease in this ocean of bad news. The former have raised prices for practically the first time in 20 years – more wood for the inflationary bonfire. And the latter benefit from the rush to get hold of a container. Nils Haupt, of the German shipping company Hapag-Lloyd, the fifth in the world, believes that the situation remains tense. It counts up to 60 ships waiting in the port of Los Angeles, and it takes eight to ten days for ships to leave China and the same to access large western ports. “It means that our containers spend 20% more time on board,” he calculates. The fragility is obvious. Sometimes a single contagion is enough to turn everything upside down: in August, a positive from a worker caused the partial closure for two weeks of the Chinese port of Ningbo-Zhoushan, one of the largest in the world, deepening delays and cost overruns.
Freight rates have not risen the same for those with long-term agreements as for those looking for a last-minute gap. “If you are Ikea, Heineken, Volkswagen or BMW and you have a contract with us, your price has perhaps grown only 10% or 20%,” explains Haupt. The company, which owns 250 boats, has ordered the construction of another 12, encouraged by the high rates that dope its income statements. Rivals are also increasing capacity, which can create the paradox that today’s scarcity is tomorrow’s abundance, when supply and demand reconnect. In full euphoria, this scenario is just an ominous hypothesis, even more distant if possible given the recent Chinese energy crisis and the worsening of the port collapse due to the lack of truckers who keep the containers stranded there without picking up. Meanwhile, with their ships packed to the brim making cash like never before, the shipping companies just want the music to keep playing, even if for the rest of the world the crisis is more of a gloomy melody.
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