companies face shortages of raw materials and components to meet demand.

From microchips to plastic: causes of global scarcity Paul Roberts Visitors: 534 ★★★★

What is a deficit?

We talk about shortages when there is a partial or complete shortage of food or goods across an area or group of people. From an economic point of view, a shortage means that the demand for a product exceeds the supply.

They can be caused by various reasons: climatic (bad harvest), political (war situation, blockade), economic (insufficient production) or even purely speculative: the fear of shortage leads to a rush on one or more products. .

At the start of the health crisis due to Covid-19, self-isolation sparked a buying frenzy of pasta or toilet paper, highlighted by images of empty shelves leading to shortages in supermarkets.

Why is there a shortage now?

Because demand grew much stronger than expected

Following these wide-ranging and consecutive shutdowns of the national economy during lockdowns in 2020 and 2021, demand for manufactured goods and raw materials has rebounded sharply, leading to supply-demand tensions.

The graph below clearly shows the supply shortage that has occurred since 2020. The lowest level of the index was reached during the first quarantine. Delivery times were shortened briefly in the summer of 2020 and then steadily extended until today.

Supply does not match global demand

Global Lead Time Index for Purchasing Managers in Manufacturing. An index above 50 indicates faster delivery.

This index is calculated based on feedback from purchasing managers in the manufacturing sector in 44 countries, depending on whether their suppliers' delivery times have increased, decreased or remained the same as in the previous month. Level 50 of the index corresponds to delivery times identical to the previous month, above 50 these times improve. On the other hand, the further the index falls, the longer delivery times become, indicating a mismatch between supply and demand.

These indexes, broken down by product type, show that shortages affect nearly every industry across a wide range of consumer goods. Electronic components are currently the most in demand and suffer from the most significant delivery delays, but they are far from the only ones.

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Electronic components and industrial products suffered the most

Global Purchasing Lead Time Index by Product Type in September 2021

Because shipping is more expensive

It is on the side of shipping, which allows the transport of 90% of the volume of goods exchanged on the planet, that we find one of the main factors explaining the supply difficulties of the world economy for several months.

The scale of the recovery in consumer demand has led to a shortage of containers to transport goods from their places of production to major consumer centers around the world, primarily in North America, the United States and Europe.

As a result, the cost of shipping containers has risen sharply in recent months, driving up the cost of imports. This is evidenced by the price index for containers from Shanghai, which has grown 6.5 times in two years and reached record levels in recent weeks.

"A 40-foot shipping container from China that cost us $3,000 before Covid-19 is now worth about $19,000," explained World Julien. Vahanyan, director of Wilson Games, a few weeks ago.

Sea transportation: the cost of containers is growing rapidly

The price of a twenty-foot container in US dollars from Shanghai according to the Shanghai Container Shipping Index, an index that weights the cost of fifteen shipping routes.

Faced with this price inflation, some shipowners, such as the French CMA CGM or the German Hapag-Lloyd, have decided to temporarily freeze the prices of some contracts so as not to penalize their customers.

Because major ports are overloaded

Since October 13, 2021, the Port of Los Angeles, California (USA) is now unloading containers around the clock to relieve the port. ROBIN BECK / AFP

In addition to the lack of available containers, logistical difficulties have been added in large ports, which lengthen delivery times. The demand is so great that the labor force of dock workers in ports is not enough to quickly load and unload goods. The Covid-19 pandemic has not helped as it has made certain docks unavailable at certain ports such as Yantian, one of the largest in the Guangdong region of China, closed for two weeks in May 2021.

The 14-day closure had more impact than the Ever-Given media block in the Suez Canal two months earlier, with analysts estimating that more than 300 cargo ships were forced to cancel their flight or change their destination, resulting in temporary blocking of more than 350,000 twenty-foot containers.

In the United States, the ports of Los Angeles and Long Beach, California illustrate the magnitude of such traffic jams. As of October 11, 2021, these two ports, which handle 40% of U.S. container imports, had 62 ships docked and 81 more waiting offshore, according to the Southern California Maritime Exchange. The Joe Biden administration announced on October 13 that the Port of Los Angeles will now operate 24 hours a day, seven days a week, hoping to help offload this vital infrastructure to the American economy. /p>

As the pandemic continues to hamper production, especially in Asia

The Covid-19 pandemic has had a major impact on consumer goods manufacturing in Southeast Asia. Since the spring of 2020, Vietnam, Malaysia, Thailand and China have introduced and continue to impose strict sanitary restrictions, which led to the closure of many factories.

In China, during the first wave of the epidemic, local restrictions led to a halt in activity: the Caixin index recorded a drop in the level of industrial production in the country in March 2020. China's manufacturing apparatus has indeed recovered from this first wave. , but the recent waves of Covid-19 announced in several cities (Wuhan, Beijing, Chongqing) and provinces (Guangdong, Fujian) in recent months have again put the industries established there in a difficult position. Thus, the factories of car manufacturers Toyota or Honda, which were forced to temporarily close in August 2021.

In China, local restrictions have had a significant impact on the economy

Caixin Index for Purchasing Managers in China. If the index exceeds 50, manufacturing activity rises, if it falls below 50, manufacturing activity decreases.

In Vietnam, the deteriorating health situation forced the authorities to introduce new restrictions this summer. In early August, the Vietnam Textile and Apparel Association (Vitas) reported that 30-35% of the country's textile factories were closed, which put Nike in particular in a difficult position. Unable to supply enough products to Western markets, most textile manufacturers in Vietnam are being punished with order cancellations or compensation requests. Difficulties also affected Malaysia, Bangladesh and Thailand, where insufficient vaccination rates could not prevent a new wave of infections.

Read the survey: Article reserved for our subscribers Taiwanese TSMC's story is one of globalization...and beyond Maxport garment factory in Hanoi, Vietnam, September 21, 2021 NHAC NGUYEN / AFP

Because commodity prices are skyrocketing

Raw materials (wood, plastic, metals, etc.) are necessary for the production of consumer goods, so their prices directly affect the company's profits and the budget of the end consumer.

However, in recent months, the prices of many of them have risen sharply. For example, before the Covid-19 pandemic, steel was selling for just under 500 euros per tonne. In recent months, it has risen to almost 1900 euros. Copper fell from 4,600 euros in March 2020 to 9,600 euros. Aluminum has risen in price, but to a lesser extent: if at the beginning of 2020 it was sold at a price of 1,700 US dollars per ton, now it costs 2,600 US dollars.

Timber market tensions have been reflected in the price of sawn softwood, which has skyrocketed in cubic meters since the start of the pandemic, reaching over $600 in May 2021 before dropping to more conventional grades since the summer.

The rapid rise in prices affected many commodities, as evidenced by the "CRB-BLS US Spot Raw Industrials", an index created in 1934 in the United States that combines the prices of thirteen commodities. was widely used by the industry of that time (including cotton, leather, printed fabrics, rubber, waste of various metals, tin, zinc, etc.). If some of these resources are obsolete, the index that combines them is considered by economists to be very useful because it reflects price fluctuations in many markets and the course of inflation. However, on October 14, CRB-BLS reached an all-time high.

Paul Roberts
Paul Roberts

Paul Roberts 51 years old Born in Edinburgh. Married. Studied at University of Oxford, Department of Public Policy and Social Work. Graduated in 1997. Works at Standard Life Aberdeen plc.

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