Global supply chains buckle as virus variant and disasters strike

A new worldwide wave of Covid-19. Natural disasters in China and Germany. A cyber-attack targeting key South African ports.

Events have conspired to drive global supply chains towards breaking point, threatening the fragile flow of raw materials, parts and consumer goods, according to companies, economists and shipping specialists, reports Reuters.

The Delta variant of the coronavirus has devastated parts of Asia and prompted many nations to cut off land access for sailors. That has left captains unable to rotate weary crews and about 100,000 seafarers stranded at sea beyond their stints in a flashback to 2020 and the height of lockdowns.

“We’re no longer on the cusp of a second crew change crisis, we’re in one,” Guy Platten, secretary-general of the International Chamber of Shipping, told Reuters.

“This is a perilous moment for global supply chains.”

Given ships transport around 90 per cent of the world’s trade, the crew crisis is disrupting the supply of everything from oil and iron ore to food and electronics.

German container line Hapag Lloyd described the situation as “extremely challenging”.

“Vessel capacity is very tight, empty containers are scarce and the operational situation at certain ports and terminals is not really improving,” it said. “We expect this to last probably into the fourth quarter – but it is very difficult to predict.”

Bangladesh is also feeling the heat of the global container crisis. But experts are saying that the situation should improve soon.

Insiders said that the stagnation of many European ports ended amid the pace of the lifestyle returning to normal, which led to a decrease in the congestion in those ports.

“The goods are being delivered from the mother vessels, which have been waiting for delivery for a long time. As a result, the vessels are returning with empty containers,” they also said.

Khairul Alam Suzan, vice president of Bangladesh Freight Forwarders Association (BAFFA), said: “Garments and other industries are closed in our country due to Eid holidays and lockdowns, that’s why they are sending fewer products to the port.”

Since this is a global problem, its solution will not be so fast, it will gradually return to normalcy, he added. “A number of cargoes have left the port before Eid and a significant number of cargoes will leave the port during the lockdown. This may improve the situation.” He also said.

He further said that there is no doubt about the ongoing problem being global. However, the port also had the opportunity to contribute to reducing the manifestation of this problem.

“We need to make more accurate and effective plans for the port. Export volume from our country is growing significantly, industries are getting much more orders. But if the port is not modern, such problems will remain throughout the year,” Suzan said.

In this case, modernization of ports, construction of the bay terminal, has become essential, he suggested.

Earlier, exports from Bangladesh have been facing unexpected delays for the last couple of months owing to the global container crisis.

According to Chittagong port officials, this has been partly brought on by the excess congestion in many Asian transhipment ports, especially Singapore, Port Klang in Malaysia, and Colombo in Sri Lanka. This means containers that took goods for export to foreign countries have yet to return for another shipment.

As a result, the inland container depots (ICDs) in Bangladesh are failing to transfer the products to the ports due to the acute shortage of containers. This problem has been amplified by delays in getting space on mother vessels in the transhipment ports, said port insiders.

ICD authorities said that there are no available bookings in the mother vessels for Europe and America from the three major transhipment ports due to the congestion of ships in the ports of those export destinations.

Meanwhile, the Chinese flooding is curtailing the transport of coal from mining regions such as Inner Mongolia and Shanxi, the state planner says, just as power plants need fuel to meet peak summer demand.

In Germany, road transportation of goods has slowed significantly. In the week of July 11, as the disaster unfolded, the volume of late shipments rose by 15 per cent from the week before, according to data from supply-chain tracking platform FourKites.

Nick Klein, VP for sales and marketing in the Midwest with Taiwan freight and logistics company OEC Group, said companies were scrambling to free goods stacked up in Asia and in US ports due to a confluence of crises.

“It’s not going to clear up until March,” Klein said. Manufacturing industries are reeling.

Automakers, for example, are again being forced to stop production because of disruptions caused by Covid-19 outbreaks. Toyota Motor Corp said this week it had to halt operations at plants in Thailand and Japan because they couldn’t get parts.

Stellantis temporarily suspended production at a factory in the UK because a large number of workers had to isolate to halt the spread of the virus.

The industry has already been hit hard by a global shortage of semiconductors this year, mainly from Asian suppliers. Earlier this year, the auto industry consensus was that the chip supply crunch would ease in the second half of 2021 – but now some senior executives say it will continue into 2022.

An executive at a South Korean auto parts maker, which supplies Ford, Chrysler and Rivian, said raw materials costs for steel which was used in all their products had surged partly due to higher freight costs.

“When factoring in rising steel and shipping prices, it is costing about 10 per cent more for us to make our products,” the executive told Reuters, declining to be named due to the sensitivity of the matter.

“Although we are trying to keep our costs low, it has been very challenging. It’s just not rising raw materials costs, but also container shipping prices have skyrocketed.”

Europe’s biggest home appliances maker, Electrolux, warned this week of worsening component supply problems, which have hampered production. Domino’s Pizza said the supply-chain disruptions were affecting the delivery of equipment needed to build stores.

Buckling supply chains are hitting the United States and China, the world’s economic motors that together account for more than 40 per cent of global economic output. This could lead to a slowdown in the global economy, along with rising prices for all manner of goods and raw materials.

US data out Friday dovetailed with a growing view that growth will slow in the last half of the year after a booming second quarter fuelled by early success in vaccination efforts.

“Short-term capacity issues remain a concern, constraining output in many manufacturing and service sector companies while simultaneously pushing prices higher as demand exceeds supply,” said Chris Williamson, chief business economist at IHS Markit.

The firm’s “flash” reading of US activity slid to a four-month low this month as businesses battle shortages of raw materials and labour, which are fanning inflation.

It is an unwelcome conundrum for the US Federal Reserve, which meets next week just six weeks after dropping its reference to the coronavirus as a weight on the economy.

The Delta variant, already forcing other central banks to consider retooling their policies, is fanning a new rise in US cases, and inflation is running well above expectations.

Ports across the globe are suffering the kinds of logjams not seen in decades, according to industry players.

The China Port and Harbour Association said on Wednesday that freight capacity continued to be tight.

“Southeast Asia, India and other regions’ manufacturing industry are impacted by a rebound of the epidemic, prompting some orders to flow to China,” it added.

Union Pacific, one of two major railroad operators that carry freight from US West Coast ports inland, imposed a seven-day suspension of cargo shipments last weekend, including consumer goods, to a Chicago hub where trucks pick up the goods.

The effort, which aims to ease “significant congestion” in Chicago, will put pressure on ports in Los Angeles, Long Beach, Oakland and Tacoma, specialists said.

A cyber-attack hit South African container ports in Cape Town and Durban this week, adding further disruptions at the terminals.

If all that were not enough, in Britain the official health app has told hundreds of thousands of workers to isolate, following contact with someone with Covid-19 – leading to supermarkets warning of a short supply and some petrol stations closing.

Richard Walker, managing director of supermarket group Iceland Foods, turned to Twitter to urge people not to panic buy.

“We need to be able to supply stores, stock shelves and deliver food,” he wrote.