The World Economy and its Ongoing Supply Chain Problems

The World Economy and its Ongoing Supply Chain Problems
TradeGM Analysis date_range August 30th, 2021

The supply chain problems that begun in 2020’s COVID-19 chaos continue to plague the world economy. Originally, the supply chain crunch was thought to be temporary, but it’s starting to look like it will continue on into 2022. The main reason for the prolonged issues is the Delta variant. 

The highly contagious strain is wreaking havoc in more ways than one. Not only does it spread much more rapidly among both vaccinated and unvaccinated people, but it’s upending Asia’s factory production and disrupting shipping, too. Each factor places additional weight on the world economy. 

Asia’s Supply Chain Problems 

According to reports, shortages in key components and the higher cost of raw materials and energy are forcing manufacturers into bidding wars to get space on vessels. In turn, this is pushing up the rate of freights to record highs, encouraging some exporters to raise prices. 

“We can’t get enough components, we can’t get containers, costs have been driven up tremendously,” said Christopher Tse. Tse is the chief executive officer of Hong Kong-based Musical Electronics Ltd. – a firm that creates consumer products ranging from Bluetooth speakers to Rubik’s Cubes.  

According to Tse, the cost of the cube’s magnets has increased by roughly 50% since March 2021, pushing the overall production cost by approximately 7%. “I don’t know if we can make money from Rubik’s Cubes because prices keep changing,” he said

China’s attempts to prevent the spread of COVID-19 infections means that even a small number of cases disrupt the trade process. The government temporarily closed part of the world’s third-busiest container port at Ningbo for two weeks due to a single positive case of the Delta variant. 

“Port congestion and a shortage of container shipping capacity may last into the fourth quarter or even mid-2022,” said Hsieh Huey-Chuan, president of the world’s seventh-biggest container liner, Evergreen Marine Corp. “If the pandemic cannot be effectively contained, port congestion may become a new normal.” 

The Other Side of the Globe 

The rest of the world is feeling the impact, too. Germany, which is often considered a barometer for business confidence in Europe, is experiencing delayed economic recovery due to shortages of semiconductors, metals, and plastic products, among other items. 

McDonald’s Corp. ran out of milkshakes in England, Scotland, and Wales. The fast-food giant is the latest in a string of restaurant chains that have been hit by labour shortages – Nando’s and KFC are also among the affected. 

A representative for McDonald’s said, “like most retailers, we are currently experiencing some supply chain issues, impacting the availability of a small number of products.” 

British retailers, restaurants, and cafes are struggling with a shortage of heavy goods vehicle drivers. COVID-19 is a major factor in this, but Brexit is exasperating the issue. Following Britain’s exit from the European Union, approximately 14,000 EU truck drivers departed in the year to June. 

Final Thoughts 

According to the Drewry World Container Index, the cost of sending a container from Asia to Europe is roughly ten times higher than what it was in May 2020. In addition to this, the cost of shipping one from Shanghai to Los Angeles has risen more than sixfold.  

The global supply chain is extremely fragile at the moment, and as a result, even a small incident can “easily have its effects compounded”, says HSBC Holdings Plc. How long it takes for the world economy’s supply chain problems to subside remains to be seen. 

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.42% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. X