Moody’s Analytics: Supply chain disruptions get worse before they get better
KUALA LUMPUR: Moody’s Analytics expects the current supply chain disruptions, chip shortage, energy crisis and labor shortages to worsen before they improve.
In his analysis released on Monday, he said efforts to diversify and localize the supply chain were underway, but it will take time for those efforts to bear fruit.
“For the investor, this means that the margins of companies that depend mainly on labor and scarce raw materials will be reduced. Conversely, companies that require fewer of these tangible inputs are likely to outperform, ”he said.
In the report prepared by Moody’s Analytics Senior Economist, Tim Uy highlighted supply chain disruptions, chip shortage, energy crisis, labor shortages, reflecting the era in which we live.
“Everything is rare and people all over the world are affected. On the one hand, it is a sign of huge growth in demand that is making everything scarce, from everyday supplies like paper to more sophisticated products like semiconductor chips.
“On the other hand, it is also revealing of the challenges that accompany such unbridled growth, in particular the limits imposed by physical and logistical constraints. The risks and opportunities lie in these unique times. Those in the right places are ready to capitalize on opportunities while mitigating risk, ”he said.
Uy said the supply chain disruptions that have hampered the movement of goods around the world, caused delivery delays and exacerbated the aforementioned shortages will get worse before they get better.
The analysis highlighted that governments around the world are doing what they can to mitigate these disruptions.
The White House opened the ports of Long Beach and Los Angeles 24/7 for 90 days in October in an attempt to ease port congestion, but the extra shift was not supported by too many operators, and the shortage of truck drivers makes it difficult. progress in the cleaning of ports.
Faced with a similar shortage of truck drivers, the United States has implemented a program to hire 5,000 European drivers to fill the local deficit and reduce congestion in its own ports.
Uy pointed out that with a supply chain disruption at its highest level since the Fukushima earthquake in 2011, Japan has appointed a new Minister of Economic Security to address its supply chain issues and build resilience.
In China, the country faces a host of supply chain issues amid the energy crisis. The country is heavily dependent on coal and recently had to liberalize the coal market to prevent further blackouts at industrial facilities across the country.
Meanwhile, Singapore has opened up more storage space and recently hired 2,500 additional port workers (a 20% increase) to speed up the movement of key goods and services through its ports.
Other countries are adopting similar measures. These are certainly welcome developments, but with an energy crisis fueling high transportation costs around the world and winter just around the corner, it’s almost certain that supply chain and scarcity issues will continue in the near future. term.
“Given the short-term challenges in overcoming these supply chain bottlenecks, governments around the world have launched programs to build long-term supply chain resilience. In supply chain resilience frameworks, energy resilience is always a key pillar.
“Specialization due to comparative advantage is optimal when there are no frictions or market failures. However, in the current context where dislocations abound, specialization translates into a risk of concentration detrimental to all.
“Over 90% of the world’s advanced chip manufacturing capacity depends on Taiwan. Droughts, earthquakes, and any major unforeseen event that compromises this capability would bring down telephone companies, advanced computer users, game console makers, and more.
“China is responsible for over 70% of the world’s supply of magnesium. Due to the energy intensive nature of magnesium production and its energy shortage, China has closed magnesium factories to the chagrin of many manufacturers around the world, ”he said.
While longer-term efforts to diversify and localize the supply chain are underway, it will take time for these efforts to bear fruit.
The world’s largest chipmaker, Taiwan Semiconductor Manufacturing Co. (TSMC) has started building a foundry in Arizona. However, it will not be operational until 2024.
Companies around the world are building ships to facilitate the movement of goods between countries; these ships will not be available until 2023.
“What is clear is that while the world will be markedly different after the current storm has passed, it will be some time before the changes materialize.
“What makes the current difficulties so pernicious is the fact that one shortage creates another. For example, when chips go missing, auto production stops and cars become scarce.
“The shocks caused by this entry-exit nature of global supply chains are magnified by bottlenecks along the distribution network. Moving goods already produced has become increasingly difficult.
“With the scarcity of all kinds of key inputs, including labor, it’s no surprise that the latest inflation reading in the United States has the rate of price increase at its highest. top level for decades. Similar inflation peaks are seen around the world, in Europe, Asia and Latin America.
“The scarcity of the means available to ship goods has resulted in an increase of more than 300% in freight rates as measured by the World Container Index over the past year.
“Energy and commodity prices remain high, despite efforts by governments around the world to increase supply. Higher transportation costs and raw material prices lead to higher input prices, ”he said in the report.