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Supply chain turmoil is damaging global growth and can be exacerbated

A cargo truck parked at the Port of Los Angeles in Los Angeles, California, USA on Wednesday, October 13, 2021.

Kyle Grilot | Bloomberg | Getty Images

Thanks to the deployment of the coronavirus vaccine, the global economy is slowly beginning to emerge from the pandemic.

However, Covid-19 left one very devastating economic problem as a result. It’s a global supply chain turmoil.

The rapid spread of the virus in 2020 caused widespread closure of industries around the world, blocking most of us, while reducing consumer demand and reduced industrial activity.

Demand soared as the blockade was lifted. And the supply chain, which was disrupted during the global health crisis, is still facing major challenges and struggling to recover.

This has caused confusion for manufacturers and distributors of goods that cannot be produced or supplied as they were before the pandemic for a variety of reasons, including a shortage of workers and a shortage of key parts and raw materials.

Supply chain problems are occurring in different parts of the world and are exacerbated for a variety of reasons. For example, power shortages in China have affected production in recent months, but in the UK Brexit is a major contributor to the shortage of truck drivers. The United States, like Germany, is fighting a shortage of trucking carriers, and the former is also experiencing a large backlog at its port.

read more: Boris Johnson promises change as Britain fights food, fuel and labor crisis

The situation “gets worse”

Unfortunately, experts like Moody’s Analytics Tim Wie say supply chain problems “get worse before they get better.”

In a report last Monday, “As the global economic recovery continues to gain momentum, the turmoil in every corner of the supply chain makes it even more clear how economic recovery will be hampered. I have. “

“Border control and movement restrictions, the inability to use global vaccine passes, and stagnant demand due to being stuck at home combine to miss deliveries, increase costs and prices, hinder global production. It will be a perfect storm to be done, and as a result, global GDP growth will not be very strong. “

“Supply can catch up for some time, especially because there are bottlenecks in every link in the supply chain. As mentioned earlier, not only the workforce, but also containers, transportation, ports, trucks, railroads, aviation, warehousing. Is the same. “

The Port of Los Angeles is scheduled to open 24 hours a day in San Pedro, California on Wednesday, October 13, 2021, waiting for the sea of ​​freight trucks to form a long line into the Port of Los Angeles.

Jason Almond | Los Angeles Times | Getty Images

Supply chain bottlenecks (congestion and blockage of production systems) can range from shortages of electronics and automobiles (problems exacerbated by the well-known shortage of semiconductor chips) to meat supply problems. It affects services and products. Pharmaceuticals and household items.

As consumer demand for missing goods rises, freight rates for goods from China to the United States and Europe skyrocket, and the shortage of truck drivers in both regions poses the problem of delivering goods to their final destination. It’s getting worse. , And when those products hit the shelves, they became expensive.

The pandemic only helped highlight how global supply chains are interrelated and can easily become destabilized.

At best, global supply chains often have low labor and operating costs associated with the manufacturers of the products they need, which can reduce business costs and spur innovation and competition.

However, the pandemic has highlighted serious vulnerabilities in these networks. Disruption at one part of the chain has a spillover effect on every part of the chain, from manufacturers to suppliers to distributors, ultimately affecting consumer and economic growth.

Supply chain crisis hits growth

ING’s Greater China Chief Economist, Iris Pang, said: “Manufacturing was hit hard by Covid’s supply chain disruption as some port operations were hit in the third quarter of 2021 and chip shortages continued. I received it. “

“Fares are still high and chip shortages remain a serious problem for industries such as equipment, automotive and telecommunications equipment, so supply chain disruptions are expected to continue,” he said.

Last week, Germany’s top economists warned that “supply bottlenecks will continue to weigh on manufacturing production for the foreseeable future,” warning that they are likely to impede the growth of Europe’s largest economy, export-oriented Germany. ..

Affected revenue

Experts point out that revenue is already beginning to show the impact of the supply chain crisis. “Supply chain concerns are growing,” said Invesco’s global market strategist Kristina Hooper last week.“” Many US companies have warned about rising costs associated with supply chain disruptions and potential lower revenues.

Hooper believed that some factors that contribute to supply chain problems, such as labor shortages, would be resolved faster than others. However, she said the issue could have long-term implications for some sectors.

“No matter where the company is, it’s likely that there are supply chain disruptions, rising input costs, and labor procurement problems,” she said in a note last Thursday.

“But some companies will be much more affected than others … rising costs generally tend to be seen in sectors such as transportation, retail, construction and automobiles. It has the greatest impact on low-end companies, with the least impact on high-margin, high-cost, low-labor companies in growth sectors such as technology and healthcare. “Unfortunately, stock prices in these sectors could temporarily deteriorate as follows. Bond yields will rise,” she said.

“Finance may stand out in this environment, especially as these companies welcome higher yields. Another differentiator is how many investment companies have done technology to increase productivity. maybe.”

Hooper said he expects some semiconductor shortages to improve soon and return to normal production levels by the second quarter of 2022. If there are additional Covid waves, “she added.

“In general, supply chain disruptions and rising input costs seem to be relatively temporary … So, for me, I’ll pay close attention to this quarter’s earnings season, but about corporate guidance. I am most concerned about the period after the fourth quarter, especially when these situations are expected to continue. “

Supply chain turmoil is damaging global growth and can be exacerbated

Source link Supply chain turmoil is damaging global growth and can be exacerbated

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