Supply Bottlenecks threaten Global Trade
Author: Hannes Rügheimer
Empty supermarket shelves in the UK, Europe-wide supply bottlenecks for everything from refrigerators to notebooks and PC components, delivery times of 10 to 18 months for new cars from German premium manufacturers or custom-made bicycles – global commodity trading has come to a standstill. For many reasons.
Anyone waiting for a PlayStation, web camera, household appliance, or even a new car will hear buzzwords like “chip crisis” and “disrupted supply chains” as explanations for delivery bottlenecks. People often add that the Corona pandemic is primarily to blame. This view isn’t wrong, but in many instances it falls short of the mark. The reasons why supply channels are no longer running smoothly are just as complex as global supply chains have always been, even before Corona.
The pandemic certainly plays an important role as a trigger. Corona cases not only brought many companies to a de facto standstill, especially in Asia. On several occasions, they also caused Chinese port terminals to be closed for weeks. The fact that container ships were no longer able to dock or disembark at cargo ports not only disrupted supply chains, but also led to a global container shortage due to longer transit times and reduced throughput. Where cargo ships finally arrived, they often encountered overcrowded and congested ports when unloading.
In addition, many other factors come into play. Some of them can be explained by shortsightedness – but that’s always easy to figure out in hindsight. Take the automotive industry, for example: When the first Corona wave caused orders for new cars to take a nosedive in the spring of 2020, carmakers immediately reduced their orders for semiconductor chips. With demand for consumer and IT electronics picking up at the same time, their manufacturers were happy to take over the newly available quotas. This development coincided with already reduced production capacities for microchips – triggered by the economic dispute between the USA and China, Corona-related outages, and transport problems at suppliers in the chip industry. This was compounded by a drought in Taiwan, which put further pressure on the water-intensive chip production. Since car orders are now picking up again, vehicle manufacturers’ purchasing departments are having great difficulty in recapturing the supply volumes they need from chip manufacturers.
A “perfect Storm” for the global economy
As is usual with “perfect storms”, there are a myriad more reasons for the current dilemma. For example, trade disputes between China and Australia led to a coal shortage in China and thus to energy bottlenecks, which in turn slowed down Chinese suppliers due to electricity rationing. Canceled vacation trips and other shifts in consumption led to an increase in private renovations, expansions, and new construction projects worldwide, while the construction industry was already thriving due to low interest rates and the real boom. The result: massive shortages of wood, steel, concrete, and other building materials. While do-it-yourselfers in the US and Canada were demanding more and more lumber for their construction projects, the supply of this natural raw material was additionally shrinking due to forest fires or small but effective troublemakers like the mountain pine beetle rampaging through Canadian forests. As a result, North American construction companies ordered lumber primarily in Europe and engaged in a bidding war with Chinese and Indian buyers for resources that were also becoming scarce on the local continent. In some cases, this caused prices to soar by a factor of five.
And as if those weren’t enough difficulties already, many countries experienced another major problem in goods distribution: a massive shortage of truck drivers. In post-Brexit Great Britain, part of the blame goes to tightened entry and residence conditions for foreign workers. But there’s also a shortage of truckers in EU countries.
Worries about young talent among Professional Drivers
The logistics industry has been complaining for years about a lack of young talent: When long-serving drivers retire, it’s difficult to fill their positions with new recruits. Strenuous working conditions meet with rather unattractive pay. Troels Lund, Chief Commercial Officer at DEKRA Denmark, reports: “The situation is getting even worse as many sectors are experiencing strong catch-up growth after the initial Corona dips. As a result, logistics and also local transport companies are facing strong competition from completely different sectors in their search for drivers. Low-skilled job seekers also have more choices than ever – becoming professional drivers is just one of many viable options for them.”
Troels Lund knows exactly what he’s talking about, because DEKRA Denmark also trains logistics specialists. They’ve known of the drivers shortage for a long time. To counter it, DEKRA Denmark already trained around 50 percent of all truck drivers in the country. “We also work closely with employment offices to place drivers. And we inform potential candidates together with employers in advertising campaigns about the good employment prospects and improved conditions in the industry today,” reports Lund. Also the Danish government is to put more focus on training people to become truck drivers.
Fully automated trucks don’t solve the problem
DEKRA has also intensified its activities to train professional drivers in other countries, such as France and Germany. Find out more here. “We’re seeing the first successes of these programs,” reports Troels Lund. And that’s extremely important, since he thinks very little of the technical solutions some vehicle manufacturers are contributing to the discussion: “Fully automated trucks, even if you limit their use to certain highway sections, are still years away. And even then, they can at best provide selective relief from shortages. In contrast, the problems of logistics and even local transport companies are short-term – they’re just happy if they can cover their demand for drivers in the next six months.”
This is also in the interest of consumers, so that not only PlayStations and web cameras, but also food, clothing, shoes, and other goods for everyday use arrive again eventually.