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“Even the auto industry did not have an overview” - an expert explains the problems of globalization

2021-09-25T03:30:11.971Z


Supply chain expert Saskia Sardesai explains the material shortage in the industry, whether globalization is over and what challenges the economy is facing.


Supply chain expert Saskia Sardesai explains the material shortage in the industry, whether globalization is over and what challenges the economy is facing.

Munich - There is a hitch in the global supply chains of companies.

There are delivery bottlenecks, especially with microchips - but not only.

We spoke to Saskia Sardesai from the Fraunhofer Institute for Material Flow and Logistics in Dortmund about the causes and consequences of the delivery problems.

What has shaken up corporate supply chains?


Saskia Sardesai: The

current cause is almost always the pandemic.

Of course, there were also events such as the traffic jam in the Suez Canal in spring or the Brexit at the beginning of the year.

The biggest problem is and will remain Corona.

How can that be?

The pandemic has been going on for a year and a half.


Sardesai:

The lead times in international goods traffic are very long.

When a company orders something, it can take up to three months for the goods to arrive.

If there is a turbulence in a global supply chain, the effects can be felt months later.

This is a huge problem for companies because the availability of parts influences production planning and causes complex rescheduling - the supply chain is precisely coordinated.


Globalization and its pitfalls: Corona pandemic paralyzes the movement of goods

Why did the problem arise?


Sardesai:

At the beginning of the pandemic *, production facilities were shut down in individual countries.

Goods were sent late, there were delivery bottlenecks.

And while we were still having these delays in the supply chain, the next lockdown popped up somewhere in the world and caused new turbulence through the entire supply chain.

And if production suddenly starts up again after a lockdown, traffic jams occur because everyone sends the containers off at the same time - which in turn disrupts the container cycle and leads to a shortage of containers.

What are the implications?


Sardesai:

Due to the traffic jams, a container needs a longer period of time before it is available again.

Last winter, this resulted in an additional demand of around 20 percent of the containers.

While in January 2020 the container between Europe and China still cost around 1,400 euros, a year later it suddenly rose to over 8,000 euros - and the expensive containers weren't even on time: at times there were delivery delays of 16 days between China and Europe.


Can you explain this with an example?


Sardesai:

The problem at the Chinese ports is known: In May, the Yantian port in Shenzhen was closed for a month after a corona case.

In July, the port in Ningbo was closed for several weeks due to Corona, which is one of the largest ports in Shanghai.

It had to be reduced by up to a quarter for several weeks.

The traffic jam at the ports is carried over into the hinterland, while at the same time the ships are no longer unloaded from the seaside.

It takes weeks or months for such a traffic jam to clear.

And such incidents have repeatedly led to turbulence.

Since the beginning of the pandemic, the supply chains have had no way of settling down again.

It sounds as if the wreckage of the container freighter Ever Given in the Suez Canal was just a minor matter.

Sardesai:

Of course, the traffic jam in the Suez Canal was not a minor

issue

.

But it is correct that the effects in the port of Yantian alone - which is even smaller than the port of Ningbo - were much stronger than the congestion in the Suez Canal.

And the pandemic has a very different impact on supply chains in a roundabout way.


Which?


Sardesai:

To cushion the crisis, many countries have launched economic stimulus programs - that's why consumption is booming there.

This is currently the case in the USA in particular

Corona crisis interrupts supply chains around the world - like in a traffic jam

But what does this have to do with supply chains?


Sardesai:

If the Americans consume more, the ports will have to process significantly higher freight capacities.

This can currently be observed: In July, the waiting time of the ships in front of the US ports was an average of five days, in August it was eight and a half days - that is, over a week.

And I expect the waiting time to increase even further.

This congestion in the US ports naturally affects the supply chains of companies in the country.

It's like on the autobahn: if a car brakes on a full autobahn, a traffic jam can quickly arise behind it.

But it takes time until the traffic jam clears up again.


A major problem in the auto industry is currently the lack of chips.

Isn't there just a lack of enough factories here?


Sardesai:

Not only that, it's also a supply chain problem. Of course, it is true that microchips and electronic components in general have always had to be ordered well in advance; that has always been a rare commodity. Now there were brief production downtimes in the chip factories during the pandemic, that was one thing. In addition, shortly after the outbreak of the pandemic, many car manufacturers cut their orders because initially nobody knew what to do next. Then there were the problems in the ports. And due to the trend towards home offices and an increasing demand for laptops and home electronics, the demand for chips has continued to rise. All of this is completely shaking up the supply chains. And anyone who wants to buy a new laptop today suddenly has to wait several months.

Corona creates fluctuations in international markets - is there a learning effect?

Not only are chips in short supply, the lumber ran out in the spring.


Sardesai:

And not only that, the steel suddenly became scarce - also a typical supply chain problem.


Why?


Sardesai:

At the beginning of the pandemic, steel manufacturers cut production - in 2020, capacities were cut by 40 percent compared to the previous year.

When the demand in the auto industry returned, there was suddenly a shortage in the market because the steelmakers could not restart their production so quickly - steel suddenly became extremely expensive.


How do companies react to supply chain problems in the long term?


Sardesai:

A rethink is taking place.

Companies are currently facing a profound event.

In contrast to the traffic jam on the Suez Canal, the risk of a pandemic was unpredictable and certainly not calculable.

And the learning effect is that the storage capacities are now being expanded?


Sardesai:

No, I don't expect that.

Warehouses tie up a lot of space and capital, which is too expensive for companies.

The companies will certainly increase their stocks in some cases, but in the long term other paths must be followed.


Which?


Sardesai:

Companies need transparent supply chains.

Because the supply chains are so complex, many companies did not even know who their suppliers were - especially in medium-sized companies.

But even the auto industry did not have the overview it needed.


Global supply chains: digitization as a tool for more transparency

But a container cannot be conjured from A to B with transparency alone.


Sardesai:

The idea is actually quite simple: If the entire flow of goods in the supply chain is digitally recorded, problems with suppliers are noticed much faster and companies can react much earlier than now and either reschedule the supply chains or adjust production.

At the same time, if-then scenarios can be played through with the data.

Based on these insights, companies can organize their supply chains to become more resilient.


Or companies are increasingly having production on their doorstep.


Sardesai:

I don't think so either.

Certainly there will be considerations here and there as to which products can be regionalized.

Europe, for example, now wants to expand its chip industry.

On the whole, however, globalization will continue unchecked.

The complex supply chains will remain, only they will become more transparent and resilient.

And when will the current delivery bottlenecks be eliminated?


Sardesai:

At the end of 2022 at the earliest, that can already be foreseen.

Depending on how the pandemic continues, it could take longer.

It is still possible that a port somewhere in the world will have to close or a company will temporarily stop production due to a corona outbreak.


Interview: Sebastian Hölzle

Source: merkur

All news articles on 2021-09-25

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