TOKYO: Shocks to supply chains are engulfing a wider swath of the global economy as the pandemic rages on, threatening to stifle Asia’s trade-led recovery and making it harder for businesses grappling with soaring freight costs to weather another year like 2020. Shortages of consumer goods like paper towels and work-from-home gear early in the COVID-19 crisis have given way to parts shortfalls in one of the most globally integrated of industries: auto manufacturing, report agencies.
Volkswagen AG was forced cut production plans at the world’s largest car factory in Germany and warned supply constraints might spread globally, while Honda Motor Co. is reducing output at five North American factories as it struggles to procure chips used to make cars.“The supply-side bottlenecks seem to be more pronounced in the U.S. and Europe where supply delivery times are slowing again,” said Rob Subbaraman, global head of macro research at Nomura Holdings Inc. in Singapore. “This is negative for industrial production in the west and should result in a sharper drawdown in inventories and upward pressure on output prices.”
Compounding the industrial imbalances are transport woes plaguing consumer and health-care sectors that are still dealing with a dearth of available shipping containers to move components and finished products out of China, Taiwan, South Korea and Asia’s other export powers.
Nerijus Poskus, vice president for global ocean at San Francisco-based freight forwarder Flexport Inc., reckons the world needs the equivalent of 500,000 more 20-foot containers — roughly enough to fill 25 of the largest ships in operation — to satisfy the current demand. In the meantime, standard container rates on transpacific routes are quadruple what they were a year ago. And that’s before equipment surcharges and premiums for guaranteed loading are added.
“Anyone paying the freight bills in 2020 though knows the true cost of shipping is much higher than even the recently increased rates,” Poskus said. “We expect that to only increase in 2021.”
Just a few weeks ago, the bottlenecks at ports from Singapore to Los Angeles and Rotterdam were looking like short-term headaches and added costs during peak season. Now they’re threatening to act more like a brake on the global recovery.
That’s because the convulsions are reaching beyond supply chains into operations, either curbing output or saddling manufacturers with goods that haven’t been paid for, and wreaking havoc on inventories and cash flows.