Berlin World trade is currently hit twice as hard. While the supply chains are suffering from the consequences of the previous pandemic waves, the Omikron virus variant is now being added. “A reintroduction of travel restrictions would be a disaster for wholesale and foreign trade,” says the President of the Federal Association of Wholesale, Foreign Trade, Services (BGA), Dirk Jandura.
There are concerns about new restrictions not only in Germany and Europe. In the USA, too, there is concern about developments. The virus threatens to “exacerbate the interruptions in the supply chain,” warned the head of the US Federal Reserve, Jerome Powell, recently.
At the moment it is not even clear whether the variant is actually that dangerous. But that is not crucial for international trade, explains Holger Görg, Director Trade at the Institute for the World Economy. “For world trade, it is enough if the states react comprehensively out of caution,” says Görg.
The US wants to hold back for the time being, but other important countries such as Australia have already announced extensive restrictions. “And China, with its zero-covid strategy, will probably also ensure that there will again be a considerable worsening of supply chain problems,” fears Görg. The chance of a recovery in the situation in the supply chains could thus be quickly destroyed.
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So now also the exposure to Omikron. Not even the aftermath of the past pandemic waves are over. Many companies had cut back on their production and fewer raw materials were extracted. Meanwhile, the demand has exploded. However, the companies cannot keep up because they lack materials – across all industries.
Institutes expect stagnation in the fourth quarter
All of this stops the upswing. The economic institutes almost all expect stagnation in the fourth quarter. Current studies show that the situation is getting worse. The expected stagnation is also due to the fact that the delivery bottlenecks now affect almost the entire economy.
At first the focus was mainly on industry due to a lack of raw materials, but now retail and construction are also affected by missing products.
In the midst of the high-turnover Christmas business, the delivery problems of German retailers have worsened significantly. 78 percent complained in November that not all goods ordered could be delivered, according to a survey published by the Ifo Institute on Tuesday. In October it was only 60 percent. The toy trade is hardest hit.
Construction companies are also now realizing the problems tremendously. There, 83 percent of those questioned groan under the sharp rise in demand for raw materials and other intermediate products, which are currently often only available with long delivery times, shows a survey by DZ Bank.
The situation is not improving in industry either. According to the Ifo Institute, 86 percent of the mechanical engineering sector is affected by material shortages. In the auto industry, the proportion is 88 percent.
The companies do not see the problems abating quickly. This is shown by the Ifo business climate index. This fell for the fifth month in a row in November, primarily due to the delivery bottlenecks. Ifo expert Klaus Wohlrabe reports that hopes for an improvement in the situation have been dashed.
The reason for this is that the lack of material has increased. According to Ifo, 74 percent of companies complain about bottlenecks in preliminary products and raw materials. That is four percentage points more than in October. Wohlrabe says: “An end to the bottleneck recession in the industry is not in sight.”
The scarcity of materials also results in higher costs. According to the Federal Statistical Office, producer prices for commercial products were four percent higher in October compared to the previous month and 18 percent higher than in the previous year – an increase that has not occurred since 1951.
This is not just due to the rapidly rising energy prices. Intermediate consumption and raw materials also increased significantly. The prices for metals, for example, rose by almost 40 percent, and softwood by more than 90 percent.
The sea route could turn from a problem to a solution
Hardly anyone expected the extent of the supply chain problems. The difficulties were foreseen early on. For example, Oliver Guttmann, head of the Belgian import company Intertrading, reported on bottlenecks as early as January: “Anyone who urgently needs container transport from Asia now feels like being on the black market ticket before the World Cup final.”
It is no coincidence that it all started with problems on the sea routes. Most of the international logistics depend on the transport routes by shipping container. Partial closings of Chinese ports due to the spread of the virus and the “Evergrande” disaster in the Suez Canal triggered chain reactions.
In the meantime, however, there are the first signs of recovery. And so there is hope that the sea route will turn from a problem to a solution. This is reflected in the container throughput index of the Leibniz Institute for Economic Research (RWI) and the Institute for Shipping Economics and Logistics (ISL), which represents 60 percent of the global volume. The index rose again slightly in October.
The index for the northern euro area, which is important for shipping, and Germany fell slightly in November, but recovered more strongly in the previous month. RWI economic chief Torsten Schmidt says that the rising corona numbers could bring this to an abrupt end.
But: “Container throughput continues to recover from the weakness during the summer months.” This is due to the fact that global capacities have not decreased despite the crisis. According to United Nations statistics, the capacity of container ships in world sea trade in 2021 will be 282 million “deadweight tons”, which represent the carrying capacity of ships. The value is three percent higher than in 2020 and six percent higher than in the pre-crisis year 2019.
The fact that the problems did arise is also due to the high demand. Because people in many countries couldn’t spend their money on vacations or dining out during the corona pandemic, they bought goods instead.
Normalization or new crisis?
But the transport industry reacts. China’s manufacturers are currently producing around three times as many containers as in an average month, figures from the Macrobond data platform show.
Gabriel Felbermayr, President of the Austrian Economic Research Institute (Wifo) adds that nothing would change directly at the overcrowded ports with more containers. But with additional containers, storage is easier for companies. “That makes production much easier to plan,” explains Felbermayr.
The improvements on the shipping route mean that there is a prospect of a general recovery in supply chains. Companies are also increasingly adapting their logistics.
Wifo President Felbermayr warns, however: “The supply chain problems are also reflected in wave movements, so they will get another boost.”
Felbermayr sees two scenarios in order to put an end to the problems in the long term: wait for a long-term normalization – or accept a short-term falling demand due to a new crisis. Omikron now makes both variants appear possible again.
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