Under the epidemic, global supply chain problems continue to worsen



         Compiled by the report of the Business Times on August 27, 2021, affected by the delta variant virus, the suspension of production in Asian factories and the disorder of the shipping market have prolonged the temporary supply chain crisis beyond 2022 and caused a greater impact on the world economy.


         Due to the shortage of key parts and the rising cost of raw materials and energy, manufacturers are being forced to participate in the bidding war for cargo space, pushing freight rates to record levels, and causing some exporters to increase product prices to cover costs or simply Cancel delivery.


   Christophe, the president of Hong Kong Music Electronics, said that the cost has risen sharply because the company cannot get enough accessories and shipping containers. The company produces consumer products such as Bluetooth players and Rubik's Cube. Since March, the cost of magnets used in educational toys has risen by about 50%, leading to a 7% increase in production costs.


   In August this year, Ningbo Port, the world's third-busiest container port, discovered a docker carrying a variant of Delta, and parts of the port were temporarily closed for two weeks. Earlier this year, the Shenzhen terminal also shut down due to a small number of cases.


   Xie Huichuan, the world’s seventh-largest container liner company and chairman of Taiwan Evergreen Shipping, said that port congestion and container capacity shortages may continue into the middle of 2022 or even the fourth quarter. If the epidemic cannot be effectively controlled, port congestion may become a new normal.


   The Drewry World Container Index (Drewry World Container Index) shows that the unit price of shipping containers from Asia to Europe is about 10 times higher than in May 2020, and that from Shanghai to Los Angeles has increased by more than 6 times.


   According to Bloomberg’s monthly survey of economists, professional forecasters have lowered their economic growth expectations for this year and extended their inflation expectations to 2022. Compared with the same period last year, the personal consumption expenditure price index is expected to rise by 4% and 4.1% respectively in the third and fourth quarters, which is twice the Fed's 2% inflation target.


   Eric Chen, a coffee machine manufacturer based in Hong Kong, China, operates a production line involving hundreds of accessories. Faced with the rapidly increasing demand for kitchen equipment, he regretted that the supply chain crisis could not be eased in a few months. Chen said that they have stocked up key components for a year to prevent production interruptions.


        The proliferation of    delta variants has made it difficult for many factories to operate. In Vietnam, the world’s second largest producer of footwear and clothing, the government ordered manufacturers to allow workers to stay overnight in factories to reduce contact with the outside world and maintain exports as much as possible. Japan's Toyota Motor Corporation announced in August that due to supply interruptions including chip shortages, the company will suspend production at 14 factories across Japan and reduce production by 40%. Companies in the UK are struggling to cope with record low inventories, and local retail prices are rising at the fastest rate since November 2017. Germany’s economic recovery is also under threat. The Munich IFO Research Institute released a key indicator of business confidence on August 25. Its decline exceeded economists’ expectations, partly due to the shortage of commodities such as metals, plastic products and semiconductors.


  Indonesia and Vietnam, as the main exporting countries, are still trying their best to control the outbreak of the delta mutant virus, and it is difficult to solve the bottleneck problem of the supply chain in the short term. Economists believe that the pressure of price increases mainly comes from capacity bottlenecks. Large retailers often sign long-term contracts with container shipping companies, but Asian production relies on a network of tens of thousands of small and medium-sized manufacturers, who usually arrange transportation through logistics companies and freight forwarders. If the shipowner sells the space to the highest-priced buyer, small and medium-sized companies have to participate in the price competition of the space. President Capital analyst Michael Wang said that 60%-70% of freight transactions on the Asia-America route are carried out through spot and short-term contracts. It is expected that the auction bidding model in the shipping market will continue until the Chinese New Year in February 2022. Of the 3,000 companies surveyed by the German Chamber of Commerce and Industry, more than half believe that widespread supply chain problems will continue until 2022.


   Jason Luo, president of Johnson & Johnson Health Technology, a Taiwanese fitness equipment manufacturer, said that the container liners do not sign long-term agreements and most transactions are done at current prices, which makes the company unable to accurately estimate transportation costs and make financial planning. The right to choose prices is not on the side of freight service buyers.


   Colin Sun, general manager of Judong Supply Chain Management Co., Ltd. in Dongguan, exemplified that a customer stored more than 70 containers in a warehouse in Shenzhen and did not ship the goods because American buyers did not want to pay for the freight. Due to rising costs, 60% to 70% of customers cut their shipments.


   The problems of factories in other Asian countries except China are more serious. Hyundai Merchant Marine Co., Ltd., South Korea's largest container shipping company, said that many Chinese companies are willing to pay higher than market prices to ship goods. Therefore, when these ships have not yet arrived in China, there is no shipping space.


   It took decades for Chinese companies to shift the production of low-value parts to South Asia and Southeast Asia, where labor costs are lower. Today, they face the problem of how to transport these scattered parts to the assembly line.


  As the factory was forced to close, manufacturers were forced to play a game of "punching moles", that is, to transfer raw materials from a country where production was discontinued to another country where production was not discontinued. Some companies even airlift leather and other materials to keep their production lines running.