Hong Kong-based coffee-machine maker Eric Chan doesn’t see the crunch easing for months as he juggles a supply line that involves hundreds of components to meet booming demand for kitchen appliances.
“We are storing up critical components for one year of usage because if we miss one component,we cannot manufacture the products,” said Chan,chief executive of Town Ray Holdings,which gets 90 per cent of sales from household brand names in Europe.
‘It is hard to see supply chain bottlenecks being resolved any time soon,with some major exporters including Indonesia and Vietnam still struggling to contain the Delta outbreak.’
Chang Shu,Bloomberg Economics chief Asia economist
The spread of the Delta variant,especially in Southeast Asia,is making it difficult for many factories to operate at all. In Vietnam,the world’s second-largest producer of footwear and clothing,the government has ordered manufacturers to allow workers to sleep in their factories to try to keep exports moving.
Even mighty Toyota Motor Corp. is affected. The automaker warned this month it will suspend output at 14 plants across Japan and slash production by 40 per cent due to supply disruptions including chip shortages.
On the other side of the planet,companies in the UK are grappling with record low levels of stock and retail selling prices are rising at the fastest pace since November 2017.
Germany’s recovery is also under threat. A key measure of business confidence in Europe’s largest economy,released on Wednesday by the Munich-based Ifo institute,fell by more than economists had predicted with the drop blamed in part on shortages for metals,plastic products and semiconductors,among other goods.
At the heart of the price pressures is the transportation bottleneck.
Big retailers tend to have long-term contracts with container lines,but Asian production relies on networks of tens of thousands of small and medium-sized producers who often arrange shipping through logistics firms and freight forwarders. They in turn have been struggling to secure space for clients as vessel owners sell to the highest bidders.
Some 60 per cent to 70 per cent of shipping deals on the Asia-America route are done through spot or short-term deals,according to Michael Wang,an analyst at President Capital Management. He said auction-style pricing may continue until Chinese New Year in February 2022.
Buyers agree. In Germany,more than half of the 3000 firms polled by the Association of German Chambers of Industry and Commerce expected widespread supply-chain problems to persist into next year.
‘No choice’
“Now container liners don’t sign long-term agreements,and most deals are done by spot prices,” said Jason Lo,CEO of Taiwanese gym equipment maker Johnson Health Tech. He said it was becoming impossible to estimate shipping costs and do financial planning,but “we have no choice.”
Colin Sung,general manager of Dongguan-based World-Beater International Logistics,said one client had more than 70 containers of goods sitting at a warehouse in Shenzhen because his American buyer didn’t want to pay the shipping cost. Sung said 60 per cent to 70 per cent of his clients have cut shipments due to rising costs.
For Asian factories outside China,the problem is even worse. Many Chinese companies are willing to pay above-market rates to load their cargo,said a spokesman at HMM,South Korea’s biggest container line. So when the ships call at ports outside China,they’re already almost full.
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Chinese companies that spent decades shifting production of lower-value components to cheaper labor markets in South and Southeast Asia now face the headache of trying to get those parts to factories where they can be assembled into finished products.
“We are talking about a lot of money just to move things around,” said Sunny Tan,executive vice president of Luen Thai International Group,which makes clothing and leather handbags for global brands.
As factories succumb to lockdowns,manufacturers are forced into a game of whac-a-mole,switching raw materials from one country to another. Some have resorted to air-freighting materials such as leather to factories to keep production lines rolling.
Meanwhile,Luen Thai’s Tan,who is also Deputy Chairman of the Federation of Hong Kong Industries,is trying to figure out how he’ll fill festive display windows in time for Christmas. “I wish when shoppers see our product they give it a kiss when they realise how difficult it was just to get it to the shelf.”