Little sign of ‘unprecedented’ supply chain delays easing in H1, says IHT Markit

Global production and supply chain disruptions have continued apace into 2022 and will come under increasing pressure from the ongoing impact of Covid-19 and rising costs, according to a new report from data provider IHS Markit. Supply chain delays hit record highs in 2021, the report says. Going into 2022, output affected by shortages is running 3.5 times above average, adds IHS Markit. At the start of 2022, container shipping supply chains “remain in the deepest crisis” ever seen, the report says. It suggests there are months to go until the disruption will begin to be unwind, and there is then potential for fresh delays around the Chinese New Year and winter Olympics. “There is no recent historical precedent for the current disruption in the modern highly integrated global supply chain system that has developed over the last three decades,” states IHS Markit vice-chairman Daniel Yergin. “What is unfolding in supply chains globally is not only disruptive, it is also historic. This is the first major disjunction in the synchronised supply chain system that has developed over the last 30 years of globalisation,” he adds. IHS Markit says supply chain pressures have driven down its global economic growth forecast for this year, from a 4.5% forecast in mid-2021 to 4.2%, and driven up its outlook for inflation. Its business outlook survey of 12,000 companies tracked the weakest levels of profit expectations so far since the outbreak of Covid-19. “The longer the pandemic keeps affecting supply chains, the weaker the growth outlook,” notes Chris Williamson, chief business economist at IHT Markit. “There are widespread fears about price hikes, supply shortages, customer resistance to high prices, and an inability to pass costs on to customers after a year of sharply rising prices, damaging profit margins,” Williamson adds. Delays to global shipping in 2021 and into 2022 are inseparable from Covid-19, the report says. Peter Tirschwell, vice-president for maritime and trade at IHT Markit, says the surge in consumer demand since the first Covid-19 lockdown in 2020 placed the shipping container supply chain under unprecedented strain. He adds that industry and infrastructure was “nowhere near prepared” for the increase in e-commerce, which saw between five and seven years of growth compressed into a single year. On paper, there is enough container capacity to cope for the surge in demand, but IHT Markit says 10% to 15% of that capacity has been taken out by port congestion. “Some headlines over the past couple of weeks have said, ‘The supply chain crisis is easing’. As 2022 begins, we do not see the evidence for that, at least not in terms of fluidity of container flows. A recurring problem since the pandemic is that the system does not have time to recover before the next shock hits,” Tirschwell says. IHS Markit believes shipping delays will be compounded by further port closure in China as the country continues strict Covid-19 lockdowns. “The 2022 outlook remains one of continuing disruption with no guarantee of a quick return to pre-pandemic system fluidity, at least through the first half of the year,” Tirschwell says. A global shortage of semiconductors is also set to continue into 2022, the report continues. This will restrict growth in the automotive sector, while limiting production and the availability of vehicles. “This globally synchronised, supply-led disruption is something that has never happened in the modern history of the automotive industry – in other words, a supply-led environment in which consumers cannot obtain vehicles on a global basis because of limitations on manufacturing inputs,” says IHT Markit’s Matteo Fini, vice-president of automotive supply chain and technology. “If the question is whether this gets fixed right away, the answer is no,” he adds. “With regard to the chip shortage, it would be safe to say 2022 is already something of a write-off – in other words, disruption will continue.” Semiconductor lead times are running at more than double the normal at 26 weeks or more, compared to the standard 12 weeks, IHT Markit says. Car manufacturers are rethinking how they manage supply chains, which flies in the face of lean inventories and just-in-time manufacturing that have characterised the sector for the past 30 years, Fini says. The costs of stopping production because of a shortage in a part’s supply far outweigh the additional costs of holding more stock, he adds. “A line stoppage costs upwards of $50m per week to an OEM (original equipment manufacturer), an unpalatable outcome if you’re missing just maybe $500,000 worth of inventory,” Fini explains. He adds that manufacturers are also thinking differently about businesses in their supply chain and forging relationships with companies they only had limited interactions with until now, including chip manufacturers, to smooth supply chain processes. According to Resilinc, factory fires were the number one cause of supply chain disruption last year, which saw an 88% rise across all drivers of delay and disruption. Supply chain shortages recorded the biggest percentage increase in delays.

Little sign of ‘unprecedented’ supply chain delays easing in H1, says IHT Markit

Want to read this article?

Read Next

Ferma members told AI will bring risk and reward for corporate insurance buyers

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Mapfre Global Risks boosts profit by 58% despite reduced premiums

Ferma members told AI will bring risk and reward for corporate insurance buyers

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Mapfre Global Risks boosts profit by 58% despite reduced premiums

Want to read this article?

Read Next

Ferma members told AI will bring risk and reward for corporate insurance buyers

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Mapfre Global Risks boosts profit by 58% despite reduced premiums

Related Articles