Trade
Business 14/11/2021

The four supply crises threatening the Christmas season

Energy, raw materials, transport and semiconductors and microchips put supplies at risk

3 min
Archive image of people in Barcelona doing their Christmas shopping.

BarcelonaThere are four supply crises that the industry is currently experiencing and that are causing supply problems that could last a few months. A fact that could mean that some of the precious Christmas gifts may not arrive on time. The outbreak of the pandemic has left bottlenecks in global chains that have resulted in a rise in energy prices, a rise in the cost and scarcity of raw materials, a lack of microchips and semiconductors and transport and logistics problems, with a significant increase in freight costs and a lengthening of delivery times.

All this has two clear consequences: firstly, the products we buy are becoming more expensive (as inflation shows: in October prices rose by 5.4%); secondly, there have been delays in transportation.

A port businessman explained that, until the covid crisis, a container could be shipped practically the day after it was ordered. "Now it can still be done, but it can take 15 or 16 days," he says. Covid led to lockdowns and port closures, first in China and Southeast Asia and then in Europe and America. This caused containers to accumulate in some ports, and now they are poorly distributed. The shortage of containers has almost increased the cost of shipments tenfold, SME association Pimec explanis, from about $1,500 per container to almost $15,000.

The problem is not only cost, but also uncertainty as to when the goods will arrive, according to Pere Relats, president and CEO of Relats group and president of Amec, an association of exporting industrial companies. "Before, a container from Asia took 4 or 5 weeks, now it takes 6, 8 or even 12," he explains.

This transport crisis is temporary, according to economist Joan Tristany, director general of Amec. "Normality will return and, if not, there will be more containers or more ships," he argues. In fact, Pere Relats points out that logistical problems, which exist, "are not a problem when it comes to getting products to customers". The problem, he explains, is obtaining supplies. In addition to the problem of containers and ships, there is also the lack of lorry drivers, which also makes transport difficult. In Spain there is an estimated shortage of 15,000 lorry drivers, and in Europe as a whole there is a shortage of 400,000, according to data from the International Road Union.

Above, the evolution and forecast of energy prices (in blue, natural gas, in red, coal, and in yellow, crude oil). Below, the time delay of supplies (in blue, the European Union, and in red, the United States)

In addition to transport and logistics problems, there are shortages and rising prices of raw materials, microchips and semiconductors. "The rise in raw material prices is toxic for the economy and the markets," explains Vincent Chaigneau, director of analysis at Generali Investments. The reasons are, according to this expert, that it reduces companies' margins and consumers' purchasing power and could lead to a tightening of monetary policy.

This affects the entire industry and also the construction industry. Forty percent of construction companies have broken contracts or stopped work due to the rise in the prices of raw materials and their scarcity, explains the Chamber of Building Work Contractors of Catalonia. According to Pere Relats, the companies have had to adapt and, accustomed to working with "just in time" supply chains they have had to start accumulating stocks to avoid having to stop production.

In the case of microchips, Seat, Ford, Stellantis and other car manufacturers have had to out workers on furlough and halt production. Global car production will be reduced by 7.1 million in 2021, according to May López, EAE researcher and director of development at the Business Platform for Sustainable Mobility. The president of Seat, Wayne Griffiths, explained that production is affected by the lack of microchips precisely when there is a high demand. This slows manufacturing rates and causes delays of months in the delivery of cars to consumers.

Pere Relats, however, believes the lack of microchips will be solved by 2023, because the decision to increase production capacity has already been taken in Europe and the United States.

Of all these problems affecting production in Catalan companies, the rising cost of energy "is the most critical," says Joan Tristany.

Haulier strike increases pressure

The National Committee of Road Transportation has called a three-day strike over Christmas, from 20 to 22 December, which will add more pressure to the supply chain problems. Lorry drivers feel abandoned by the state. Catalan hauliers from the Catalan Transport Guild, part of Cecot, have also joined in.

The committee has explained that the sector's patience has run out, after several years of negotiation around their demands, which include banning drivers loading and unloading trucks, not introducing the Eurovignette, mandatory application of a fuel cost review clause and construction of safe rest areas for drivers.

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