Global traffic jam: works stopped, game consoles sold out and nine months to receive a car

Something is not right in globalization when a car buyer must wait nine months to receive his vehicle; when laden container ships queue for more than a week at the ports of Rotterdam, Antwerp or Los Angeles. Something happens when there are companies in the toy industry that do not know if they will have their products in time for the lucrative Christmas campaign. When the car plants stop because they don't have semiconductors and the works are delayed due to the shortage of wood, aluminum or steel. Even the president of the United States, Joe Biden, has gone down to the arena to tell distributors like Fedex and UPS that sleep is a luxury they cannot afford in the midst of a supply chain crisis and that they must deliver 24/7 a week, to relieve the monumental jam of accumulated goods in warehouses and ships.

World trade, a logistics success for decades, has been knocked out for 20 months by the pandemic. First it was the closure of borders and factories. Lately, an unaffordable demand in a context of interruptions in factories due to specific infections, the alarming shortage of chips, an increase in savings due to public stimuli that is going to the purchase of physical goods due to the stoppage of services, the risky dependence on China, the lack of truck drivers and a general rise in prices due to rising energy prices, raw materials and container transport.

In this scenario, the first songs of deglobalization withdrawal are already sounding, with the French president, Emmanuel Macron, as the leader of the reindustrializing chorus thanks to a 30,000 million euro plan to turn France into a leading country in innovation. The word sovereignty is back in fashion after decades of relocation to manufacture more for less on the back of cheap Asian labor. But despite the severity of the supply crisis, China will not cease to be the world's factory overnight. It is something slower and more subtle: the EU has not forgotten the chaotic arrival of Chinese planes to supply Europe with masks, and it wants to be self-sufficient at least in essential areas such as health. The shelves are not going to wake up empty either: in the midst of an atmosphere of strong competition, those goods that take months to become available again will be replaced by others on the shelves.

The mess, in any case, is colossal. Not enough to completely derail the recovery, but enough to detract from it. The half dozen sources consulted agree that it will probably end sometime in 2022. They do not agree whether at the beginning or at the end. It is not much clearer to the World Trade Organization, which uses the vague formulation of "several months", although more and more pools postpone normalization to 2023.

Fernando Gil, general manager at BSH Electrodomesticos —part of the Bosch group— and president of APPLiA, the sector's employers' association, is familiar with the problem. “Many large electronics such as washing machines, refrigerators and ovens have components that come from China to be assembled in the West. And factory closures, shipping delays due to lack of containers, and port bottlenecks have made them scarce,” he summarizes. To manufacture a single washing machine they have suppliers from Spain, Morocco, Poland, Turkey, China, Japan and Mexico, among others. "But if you're missing the Taiwanese chip, it doesn't matter if it's 20 countries or 30. The herd always runs at the speed of the slowest buffalo."

In his opinion, it is necessary to relocate, although sometimes the borders are blurred. "If you hire a supplier from Zaragoza and they open a factory in China to save costs, is it Spanish or Chinese?" The lack of components is delaying the production of certain models up to a year, but for that there is a broader catalog. “People need a washing machine. If they don't have the one they want, they buy a similar one”, concludes Gil, who has detected a change in habits. “In my sector the effect of returning to the cave has been produced. Since so much has been lived at home in the pandemic, people have become accustomed to spending a lot of time in it and have realized that the mattress, the television and the oven are old. And since there have been no spending options on hotels, travel or fashion, they are spending a lot on improving the equipment of the homes”.

The manager is aware that the phenomenon goes much further: given the breadth of stock breakages, he has ordered a company car that will replace the current one a year before he needed it. And although he may seem so, he is not overzealous. Nieves Benito, head of Fundamental Research at Santander AM, believes that the automobile industry is the most affected by the supply crisis, especially due to the lack of chips. Only the Renault brand calculates that it will stop manufacturing 500,000 vehicles this year, bringing the global figure to the millions. Manufacturers have also had to adapt both to the strict regulation of polluting emissions and to the sudden awakening of demand, driven by consumers who in certain cases have moved their residence away from large cities and prioritize the individual vehicle over public transport for the virus. “The result has been clear: we find vehicle inventories at a minimum, waiting lists and car prices on the rise, so the pressure has also been transferred to the world of pre-owned vehicles. The delivery of new vehicles is taking time and, depending on the brand, it can mean a wait of up to nine months”, he points out.

Juan Sánchez, a 65-year-old retiree living in Madrid, has verified it personally. Every four years he changes his Mercedes for another thanks to a leasing contract with the German manufacturer. This year he heard about the chip crisis in June and went straight to the dealer to ask for the renewal in time. “Luckily I did, because it doesn't arrive for another eight months. They will have to extend the renting of the current one, if not, I will lose my car”, he affirms with astonishment.

On the supply side, the lack of chips is leading to factory shutdowns for weeks. "This is something that we will surely continue to see in 2022. Semiconductor producers are focused on higher-margin chips, such as those installed in electronic items, and less on those installed in cars," adds Benito. Sources from the Anfac employers' association add to the perfect storm the rise in the price of raw materials such as steel or oil, as well as the increase in electricity prices, which affects the production costs of automobiles manufactured in Spain.

The examples of supply problems are multiple, from electronic cigarettes, to paper or video consoles such as the PlayStation 5, the jewel in the crown of Sony, practically unfindable for months due to the shortage of chips. In the textile sector, very present in Southeast Asia, Nike has been one of the main victims. 51% of its shoes leave Vietnam, and due to the increase in infections, the government closed the factories for several weeks between July and September, leaving the North American brand without some 80 million pairs.

Eduardo Zamácola, president of the Spanish textile employers' organization Acotex, calculates that the cost of the container has multiplied by 10 and the waiting time has doubled. "That's when it doesn't happen that someone pays more and they take your container off the ship," he says. He acknowledges that the situation generates uncertainty among the brands, which as alternatives have moved orders by plane —more expensive—, and have relocated part of the production that until now left Southeast Asian countries such as Vietnam, Cambodia or Laos. Numerous textile companies decided to settle there because of its low costs, but the supply crisis calls into question that logic. The return has advantages and disadvantages: on the one hand, it is more expensive, but on the other, employment is created in countries such as Spain that have lost a large part of their industrial fabric, and manufacturing at home gives companies more flexibility because they are not obliged to do so wholesale. "You can make 700 units of a red sweater and test if it works, instead of 2,000 in Asia that if they don't succeed, they end up in sales," says Zamácola.

A survey by the Spanish construction employers (CNC) of 300 companies in the sector reveals that three out of four have suffered shortages or unusual delays in the last three months. The construction of new homes in the United States fell in September by 1.6% due to the supply crisis, the rise in the price of raw materials and the lack of workers. Swedish furniture giant Ikea is not unscathed either. “We are focused on ensuring availability in our best-selling products and ensuring that the most relevant of the season are available,” says a spokeswoman for the firm, which acknowledges that stocks “may vary between different markets and even between stores. the same country”.

With Christmas just around the corner, there are even those who wonder if gifts are in danger. José Antonio Pastor, head of the Spanish Association of Toy Manufacturers, reassures: high competition guarantees that if a toy is not available, another will take its place. Of course, some firms will accuse not being able to sell models that would otherwise have been a success. Pastor explains that Spain has the second largest industry after Germany, but imports raw materials, components and finished toys for more than 1,000 million euros a year, most of it from China. The lack of containers is taking its toll. “If a container used to cost us 2,000 or 3,000 dollars, now we pay more than 15,000. There are delays of eight or nine weeks, and in the worst case you run out of space and your products do not leave the port”.

Sources from Anged, the employers' association of large distribution companies —which has among its associates giants such as Carrefour, El Corte Inglés or MediaMarkt—, points out that the sector, aware of the global logistics earthquake, has planned the long-awaited campaign with more time than usual. Christmas, where a strong reactivation of consumption is expected after a fateful year and a half. "If there is no specific product, there will be 10 or 12 brands to replace it," they say.

Shipping companies and semiconductor firms, the winners

Semiconductor manufacturers and shipping companies swim freely in this ocean of bad news. The former have raised prices for practically the first time in 20 years—more wood for the inflationist fire. And the latter benefit from the rush to get hold of a container. Nils Haupt, of the German shipping company Hapag-Lloyd, the fifth in the world, believes that the situation remains tense. He counts as many as 60 ships waiting in the port of Los Angeles, and it takes 8-10 days for ships to leave China and the same to access major Western ports. “It means our containers spend 20% more time on board,” he calculates. The fragility is obvious. Sometimes a single contagion is enough to turn everything upside down: in August, the positive of a worker caused the partial closure for two weeks of the Chinese port of Ningbo-Zhoushan, one of the largest in the world, deepening delays and cost overruns.

Freight rates have not risen in the same way for those with long-term agreements as for those looking for a last-minute slot. "If you are Ikea, Heineken, Volkswagen or BMW and you have a contract with us, your price has maybe only increased by 10% or 20%," explains Haupt. The company, owner of 250 ships, has ordered the construction of another 12 encouraged by the high rates that dope their income statements. Rivals are also ramping up capacity, which can lead to the paradox that today's scarcity is tomorrow's abundance, when supply and demand re-couple. In full euphoria, this scenario is just a doom-and-gloom hypothesis, even more distant in the face of the recent Chinese energy crisis and the exacerbation of the port collapse due to the lack of truck drivers who keep the containers stranded there without picking up. Meanwhile, with their ships packed to the brim making cash like never before, shipping companies just want the music to keep playing, even if for the rest of the world the crisis is more of a gloomy tune.