Supply chain chaos threatens global economic growth

WASHINGTON/BERLIN

While the global economy is emerging from the coronavirus pandemic, ongoing supply chain disruptions risk global growth.

Problems in the supply chain such as rising raw material prices, computer chip shortage, port congestion, and shortage of truck drivers threaten the global economy.

Moody's Analytics senior economist Tim Uy told Anadolu Agency that the current supply chain disruptions will continue.

"There are bottlenecks in every link of the chain – whether it be shipping, ports, trucks, rail, air or warehouses – leading to delivery time delays reaching historic highs in some places," he said.

Pointing to myriad reasons for this, Uy said the truck driver shortage, issues with the asymmetric reopening of different countries around the world, and high energy prices are some of them.

"It is unlikely that the global supply chain disruptions completely clear until 2023 at the earliest," he stressed, as various countries are seeing disruptions get worse and are acting on it.

"The White House working with private companies to clear port congestion in LA and Long Beach, the UK government moving to hire additional drivers to mitigate the truck driver shortage – but it will take some time before these measures bear fruit," he explained.

The supply chain, which was interrupted last year due to the pandemic and the quarantine measures, is struggling to recover while facing booming demand with the vaccination and ease of measures.

This chaos in the supply chain is limiting the ability of manufacturers and distributors to meet growing demand as they cannot supply and produce as before the pandemic.

Last year, COVID-19 disrupted the supply of some goods with causing factory closures, layoffs for workers and halting production. This coincided with a sharp decline in consumer demand for many products, pushing economies around the world into a deep recession.

Global demand for goods has quickly bounced back, driven by the rapid development of COVID-19 vaccines, high levels of government support, and changing spending habits.

As Christmas holiday is coming and willingness of people to spend in developed countries grows, demand continues to boost. But on the supply side, problems are also climbing for reasons that go beyond the pandemic.

The COVID-19 continues to reduce the capacity of factories in Asia, making shipping and logistics more costly. Extreme weather events due to the global warming are also causing more disruption.

While the power shortages in China have hit production adversely, the lack of truck drivers in the UK hinders distribution. In countries such as the US and Germany, there is concern about the port congestion.

Shipping container shortage, the scarcity of critical raw materials such as rubber, timber, steel and semiconductors, and the lack of basic workforce, including truck drivers, which have worsened during the pandemic period, are among causes for supply chain disruption.

The incompatibility of measures to curb the coronavirus by countries around the world also complicates the case as related restrictions are loosened more in the US, while strict measures still continue in Asia.

This situation makes it difficult to take transport workers to the ports and centers where they are needed in the global labor market.

Supply bottlenecks are already implying impediment in economic recovery in some countries, with experts warning that supply chain woes "will get worse before they get better".

Problems in the supply chain are expected to limit production globally until next year.

- Global supply chain under pressure

In its latest report, Moody's stated that ongoing supply chain disruptions are challenging the resurgence of global trade. While global trade is expected to grow by 9-11% in 2021, Moody's said that supply chain bottlenecks will limit the recovery.

The increase in the freight prices of goods shipped from China to the US and Europe besides the lack of logistics personnel in those countries make it difficult for the goods to reach their final destinations, raising the cost and causing them to sit on the market shelves at higher prices.

Data from the UN Trade and Development Agency (UNCTAD) showed that shipping from China to South America earlier this year cost five times more than last year.

Freight prices on the routes between China and North America increased more than twice as well.

As reported by the US media, there are nearly 500 large container ships waiting to dock outside the ports in Asia, Europe, and North America.

Backlogs exacerbated by labor shortages and supply chain disruptions can take months to get through, leaving store shelves empty and consumers facing higher prices as they prepare for New Year's shopping, according to experts.

Problems in the supply chain are slowing down economic activity in China, the US, and Europe.

The Chinese economy, which grew 18.3% in the first quarter and 7.9% in the second quarter, lost its growth momentum and expanded 4.9% in the third quarter of this year.

The International Monetary Fund (IMF) revised its global economic growth projection to 5.9% for 2021 and kept its forecast for 2022 stable at 4.9%, reflecting pandemic-induced longer-than-expected supply shortages and worsening pandemic dynamics.

German think tank The Kiel Institute for the World Economy pointed out that global industrial output climbed above pre-crisis levels in early 2021 but has stagnated since then.

The European Central Bank head Christine Lagarde also warned that the globalized nature of the eurozone economy is highly vulnerable to systemic shocks from supply chain disruptions, highlighting that bottlenecks hit the eurozone more than any other economy.

Supply chain bottlenecks bring along inflationary concerns in the US and Europe.

Rising inflation rates push central banks to cut their pandemic-period incentive policies, which affects global economic growth negatively.

Problems in the supply chain had a hold on some companies' sales and profits in the third quarter. The downward revision in the sales expectations of publicly traded companies also put their shares under more pressure.

Companies complain about rising material prices, extended delivery times due to delays in the supply chain and, in some cases, order cancellations.

As the world economy moves into the final phase of the COVID-19 pandemic, companies and consumers feel the global supply chain is under pressure.

The deepening energy crisis, especially in Europe, is causing serious damage and some surprising volatility in everything from transporting goods by train to growing vegetables in greenhouses.

Governments are trying to combat the higher gas and electricity prices that have plagued energy retailers and important sources of carbon dioxide. Energy shortages hit Europe as well as China and India, causing power cuts.

Experts point out that there is a history of worsening problems during the COVID-19 pandemic.

The global economic growth through giving priority to cheap goods production instead of supply chain flexibility and the creation of a single country-dependent supply chain may be the main problems, analysts argue.

Experts say that these problems will not be solved easily and that extending the working hours of employees in the logistics sector is a small step that targets only a part of the supply chain.

*Writing by Tuba Sahin in Ankara