It has become an almost daily headline, The front page of The Wall Street Journal (Oct. 9-10, 2021) is the title of today’s post and opens: “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.”
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 Covid lockdowns, constricting their ability to meet demand.
Meanwhile, global labor shortages, often the result of people leaving the workforce during the pandemic, are throwing further off production obstacles. At the heart of the 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. Freight rates on the heavily trafficked China-North America route more than doubled this year.
Beyond China, Covid-related factory closures in Malaysia have hit chip supplies to car makers in a semiconductor market already hit by outages in Texas, Japan and Taiwan. 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 9 months. 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 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.
The global auto industry will lose 7.7 million vehicle sales world-wide, 10% of expected production in 2021 (costing $210 billion in revenue), as a result of the chip shortage,. “We are not demand-constrained, we are supply-constrained,” said Daimler’s CEO, adding that the chip supply squeeze would be felt into 2023.
Classroom discussion questions:
- Summarize the basics of the global supply chain breakdown.
- What is the impact on consumer goods?