- Energy crises in mainland China and Europe are the latest for Royal Shipping. Capital Economics noted that there has been a resurgence in the number of ships waiting outside Chinese ports in recent weeks.
- Factory closures in Vietnam, where many firms relocated manufacturing amid the US-China trade dispute, have also affected production of many goods.
- Here’s a list of items that have been affected in the lead-up to the holiday shopping season at the end of the year.
From container shortages to floods and port closures due to COVID-19 this year, supply chains everywhere have been disrupted in a big way.
Energy crises in mainland China and Europe are the latest for Royal Shipping.
Capital Economics noted that the number of ships waiting outside Chinese ports has risen again in recent weeks, calling it “concerned”. According to the research firm, the 7-day average for the number of ships as of September 30 was 206, compared to the average 82 ships for 2019 before the pandemic.
Julian Evans-Pritchard, senior China economist at the research firm, said power rationing along the supply chain could interfere with ports’ ability to ship orders.
Factory closures in Vietnam, where many firms relocated manufacturing amid the US-China trade dispute, have also affected production of many goods.
Here’s a look at how recent developments have once again halted shipping and what types of goods are affected by the year-end holiday shopping season.
Power shortages in China have caused widespread disruption as local authorities have ordered power cuts at several factories. Europe is also grappling with a severe gas shortage.
Industry watchers and analysts say what is happening in both regions is a perfect storm that is disrupting supply chains globally.
Factories in China and Europe have temporarily closed or at least reduced production due to the energy crisis. Don Tiara, president of Sourcing Industry Group, said the biggest impact would be felt by consumers in the form of higher prices as increased energy prices would increase manufacturing costs.
What stuff is being hit:
Rising energy prices in Europe will have a “severe cascading effect” on the region’s food supply chains, Tiura says.
“Major fertilizer plants were forced to cut production due to rising costs, and now farmers cannot produce enough food as a result,” she explained.
2. Carbonated drinks, dry ice, canned foods
Per Hong, senior partner at consulting firm Kearney, says the pressure on fertilizer will lead to a reduction of a “very interesting by-product” – carbon dioxide – which is used in a wide range of consumer products.
“With the reduction in fertilizer production, we will almost certainly face a global shortage of CO2, which is widely used. For example, dry ice is used to keep frozen food cold. During delivery, to give carbonated drinks (such as soda and beer) their bubbles,” he said.
This points to the vulnerability of global food supply chains, Hong said.
3. Apple iPhones, Electronics, Toys
According to Hong, several major Apple suppliers have suspended operations at their factories in China. In fact, the entire electronics industry — already grappling with major chip shortages — is likely to suffer, he said.
“While likely to normalize in the long term, in the immediate near term these power restrictions and production cuts in China are likely to increase export prices, with inflation worsening during the holiday season,” Hong said. Because toys and clothes are also likely to be affected.
4. Christmas decorations
Companies are warning that there will be a huge demand for Christmas decorations.
Chris Butler, CEO of the National Tree Company, said, “People hoping to buy holiday trees and other decorations this holiday season better do so before Thanksgiving or paying through the nose or nothing at all. ” Supply chain disruptions in China.
Pawan Joshi, executive vice president of supply chain software firm E2open, said other sectors that will feel the biggest and most immediate impact from the crisis include metals, chemicals and cement – all of which are energy intensive.
Factory closures and labor shortages across Southeast Asia due to Covid are causing significant short-term disruption “with production in Vietnam, Thailand and Malaysia,” says Gareth Leather, senior Asia economist at Capital Economics.
The situation in Vietnam appears to be particularly important, as many companies moved their manufacturing from China in the midst of the US-China trade war.
Financial services firm BTIG said in a September note that companies with significant investments in Vietnam include Nike (43%), Lululemon (33%) and Under Armor (40%).
What stuff is being hit:
1. Sports shoes and sports clothing
The shutdown in Vietnam has resulted in production losses of about 100 million to 150 million pairs of sports shoes, according to Bank of America estimates published in a note last week.
BTIG Noted Footwear is suffering more from Vietnam’s shutdown than sports apparel.
Meanwhile, Lululemon CEO Calvin McDonald said in an earnings call last month that Vietnam shutdowns and port-related issues are contributing to disruption and increased costs within the supply chain.
Analysts say the closure of factories in Malaysia is affecting auto production.
Bank of America has said in a recent note that supply constraints will remain for some time even when Malaysia resumes operations.
According to Capital Economics, the disruption in chip supply from Malaysia is also halting car production in China.
Analysts say that apart from sports, other industries that rely heavily on manufacturing in Vietnam include toys, clothing and even coffee.
Everstream Analytics’ Jenna Santoro says commodity shortages and price increases are likely to worsen as winter approaches.
“As demand for gas naturally increases during the winter season, shortages are likely to intensify,” Santoro said. “Entering the season with lower inventory levels and increased demand also continues to drive prices up.”