The COVID-19 pandemic has turned the world economy upside down. In the history books, we will one day be able to read about the total shutdown of world production. At the same time, the need for masks, medical equipment, and digital products exploded. All this has caused a global shortage. That was in May 2020, and it’s still on everyone’s mind. One year later, where are we?
The explosion of demand caused by similar needs
In France, in Europe and in the world, we all follow the same guidelines. It’s the era of all-digital. But it is also the time of the real production recovery. The health crisis has stopped or slowed down many industries. This led to two problems. Now we need to restart manufacturing, and that can sometimes be complicated. But above all, it must be stronger and faster! Indeed, the loss of earnings and the demand that catches up with lost time are two factors that lead to strong needs.
Today, all countries have the same needs. Logistics needs to import and export, raw material needs to supply heavy industry, or spare parts needs to assemble consumer products such as vehicles or electronic products.
Demand exceeds supply, which leads to higher prices, but money is not the only factor. State policy also comes into play.
Shortage of components in production-ready sectors
While last summer, only a few weeks after the first wave of the epidemic, most industries had resumed production, many production sites are at a standstill right now. The staff could be there, that’s not the point. The machines can work, they are capable of it. But which components to assemble? Europe is suffering from a shortage of electronic components. Semiconductors manufactured mostly in Taiwan. Semiconductors, but what for?
These electronic chips are everywhere, in our cars, smartphones, printers, computers and more. The confinements made the demand for computer hardware explode during 2020. For example, it is the year of all records for computer sales, with an increase of 10% compared to 2019. This is due to the worldwide teleworking.
This shortage of electronic cards is causing the temporary stoppage of several automobile lines, notably at Renault with weeks of closure at Flins, and the same for PSA in its factories at Sochaux and Rennes. This is one of the limits of “Just in Time”. Toyota also put its North American factories on hold last month.
The automotive sector is not the only one impacted. Sony has announced that it will not be able to meet its sales targets for the Playstation 5 in 2021, for no other reason than the shortage of these chips. We’re talking about the brand’s flagship product.
A shortage of raw materials?
Raw materials are suffering the same fate, with growing needs and a decreasing supply. This is the case for steel, copper and aluminum. Here again, demand is increasing worldwide, while mines have stopped during the last year. The only way out of this situation is an increase in prices. As proof, the French giant Nexans published a price comparison between July 2020 and February 2021 at the beginning of the year. The price of a ton of steel has increased by 106%, tin by 53% and copper by 50%. PVC has undergone an inflation of 115%.
The plastics industry has not been spared. A combination of circumstances also reaches this sector, with ruptures of polypropylene. This very common plastic is used in particular for pipette cones necessary for PCR tests. What are the reasons and why this shortage? The factories stopped last May, but not only. The cold wave that hit Texas in February caused the closure of several petrochemical sites there. Power outages were to blame. The particularly severe storms on the Gulf Coast in 2020 also had a hand in this. This was followed by record increases in the price of all plastic components from these factories: Polypropylene, Polyethylene, PVC, etc…
Once again, the automotive industry is affected, but also paint manufacturers and the construction industry. And if all this was not enough, in addition to the lack of materials, we are sorely lacking in intercontinental transport solutions.
International logistics overloaded
Last year’s drop in world production prompted carriers to reduce their supply. They reduced their transport capacity by about 30%. They were not prepared for an increase in demand. In fact, consumers have spent more money on goods over the past 12 months than ever before. This is due to the closure of restaurants, bars, and the inability to travel.
It’s no secret that the number one exporting continent for consumer goods is Asia. When demand exploded, the decrease in the number of containers was unwelcome. Moreover, a lot of transport capacity was absorbed by the transpacific axis, represented by the Americas in general. Today, traffic is still not back to normal, the price of a 20-foot container has risen from $1,000 in July 2020 to over $4,000 today.
The consequences are heavy, with supply disruptions at some French and European customers. We are talking about factories supplying themselves on the Asian market, as is the case for the electric bicycle market. The fault of overbooking of containers generating cancellations, extended booking times, not to mention the general delay that the “Ever-Given” offered us, blocking the Suez Canal for several days.
The air and rail carriers are rubbing their hands, but those of the maritime sector also. Indeed, this shortage of containers has increased prices, and therefore their margins. No figures have been announced here, but Jerome Powell, the President of the Fed (American Central Bank) is reassuring: “We think that the supply chain will adapt and become more efficient, it could take a year, but it will happen.
But how do we fight these shortages?
It is difficult to find a turnkey solution, but many people are working on it. For minerals, we have a few mines in Europe, dominated by Sweden and Finland, but they represent a very small share of global production. Indeed, in 2017, the EU produced only 9% of its mineral consumption. This will not be enough. It is in this context that we must keep our fingers crossed to avoid entering into diplomatic conflict with the producing countries. This could be fatal to many French structures. The cards are in the hands of the government.
At the same time, another area of work is the search for technologies that use less material, with cleaner processes. While waiting for these new technologies, the biggest benefit in terms of available materials remains recycling. Indeed, thanks to the reuse of materials, we will be able to move towards the reduction of imports. This will not provide us with autonomy, but it can help us move forward… If the recycling takes place in the country.
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