Cor­po­rate con­cerns: lock­downs and the war in Ukraine are wors­en­ing sup­ply bot­tle­necks

The war in Ukraine has con­tin­ued to es­ca­late for over three months now, and so has the size of its im­pact – on the Swiss econ­omy, too: 70 per cent of com­pa­nies said that they had been af­fected by the war, ei­ther di­rectly or in­di­rectly. Nine in ten in­dus­try rep­re­sen­ta­tives said that they had been af­fected, which is more than one and a half times as many com­pared to the pre­vi­ous sur­vey in March. Sanc­tions also play a role in this, al­beit more of a minor one: about a quar­ter of com­pa­nies sur­veyed have been im­pacted by the eco­nomic sanc­tions.

Ukraine war causes raw ma­te­r­ial and pri­mary prod­uct short­age

Higher en­ergy prices and dif­fi­cul­ties in sourc­ing raw ma­te­ri­als and pri­mary prod­ucts are the main is­sues. More than half of the com­pa­nies sur­veyed said that they had been af­fected by this as a re­sult of the war. There is a short­age of steel and steel prod­ucts in the me­chan­i­cal and elec­tri­cal en­gi­neer­ing in­dus­tries. Dif­fi­cul­ties im­port­ing raw food ma­te­ri­als like Ukrain­ian wheat are caus­ing prob­lems for whole­salers, and there’s also a short­age of wood and pack­ag­ing in the con­struc­tion and trans­port sec­tor.

An in­creas­ing num­ber of in­dus­tries are also feel­ing the in­di­rect ef­fects of the up­heaval. As an ex­am­ple, Ukraine is one of the most im­por­tant sup­pli­ers of wire har­nesses, which are used in the car in­dus­try. Pro­duc­tion has been dis­rupted due to the war, re­sult­ing in pro­duc­tion down­time for car man­u­fac­tur­ers as well as af­fect­ing Swiss sup­pli­ers, like those from the chem­i­cal and tex­tile in­dus­tries, as a re­sult of can­celled or post­poned or­ders.

Ship­ping lo­gis­tics dis­rupted

In ad­di­tion to re­stricted man­u­fac­tur­ing, the war has also pre­dom­i­nantly re­sulted in lo­gis­tics is­sues. Ukraine’s major ports, in­clud­ing Odessa, are closed due to the con­flict and a Russ­ian naval block­ade. The im­pact of this has been im­mense. Be­fore the war, over 70 per cent of the coun­try’s ex­ports were trans­ported by ship. The war has also wors­ened the staff short­age in cargo ship lo­gis­tics. This is be­cause about one in six cargo ship em­ploy­ees are from Rus­sia or Ukraine. The con­flict has also af­fected land routes in ad­di­tion to sea routes. Dri­vers from both coun­tries make up a sig­nif­i­cant pro­por­tion of Eu­ro­pean trans­port com­pa­nies.

There’s an­other good rea­son for dis­rupted sup­ply chains too: China’s strict coro­n­avirus pol­icy, with its tough re­gional lock­downs, has re­sulted in cargo ship traf­fic jams and fac­tory clo­sures. About three per cent of the world’s con­tainer ship ca­pac­ity is cur­rently stuck in a traf­fic jam just out­side of the port of Shang­hai. 62 per cent of the com­pa­nies sur­veyed saw this as the rea­son for the on­go­ing sup­ply dif­fi­cul­ties. The trans­port and lo­gis­tics prob­lems are vital is­sues, re­gard­less of the mode of trans­port: nine in ten in­dus­try rep­re­sen­ta­tives at­trib­uted the dis­rupted sup­ply chains to these prob­lems.

Dis­rupted sup­ply chains in­crease prices

It’s hardly sur­pris­ing that dif­fi­cul­ties in sourc­ing pri­mary prod­ucts con­tinue to take first place when it comes to is­sues Swiss com­pa­nies are con­cerned about. But there’s not just a short­age of prod­ucts and raw ma­te­ri­als: it’s also prov­ing dif­fi­cult to re­cruit skilled work­ers. More than a quar­ter of the com­pa­nies sur­veyed can’t find enough trained staff. At the same time, the de­mand for many con­sumer goods re­mains high.

This dis­tinct short­age is not with­out con­se­quences. All in­dus­try rep­re­sen­ta­tives sur­veyed said that pur­chase prices have in­creased. This is in ad­di­tion to the in­crease in en­ergy prices caused by the war. This not only makes pro­duc­tion more ex­pen­sive – es­pe­cially in en­ergy-in­ten­sive in­dus­trial sec­tors – but also dri­ves up the al­ready high lo­gis­tics costs even fur­ther.

So far, com­pa­nies have used their mar­gins to ab­sorb the higher pur­chase and en­ergy prices. How­ever, they have not been able to re­duce price pres­sure de­spite look­ing for new sup­pli­ers and aim­ing for higher in­ven­tory lev­els. As such, sup­ply bot­tle­necks are slowly af­fect­ing com­pany cap­i­tal. These on­go­ing dif­fi­cul­ties mean that two thirds of those sur­veyed are now plan­ning to in­crease their sales prices by an av­er­age of six per cent in the next six months.

Quick re­cov­ery not ex­pected

Even if the port block­ades in Shang­hai were lifted, for ex­am­ple, things wouldn’t sim­ply bounce back to run­ning smoothly again. It will take sev­eral months for sup­ply chains to re­turn to nor­mal. The ma­jor­ity of the com­pa­nies sur­veyed didn’t think that sig­nif­i­cant im­prove­ments in the sit­u­a­tion would occur this year. More than three quar­ters ex­pected de­liv­ery bot­tle­necks to con­tinue for the next six months. economiesu­isse’s lat­est eco­nomic fore­cast goes into in-depth analy­sis on what this means for Switzer­land’s eco­nomic re­cov­ery.

economiesu­isse’s sur­vey was con­ducted from 11 to 23 May 2022. 182 or­gan­i­sa­tions took part in the sur­vey. The sur­vey cov­ered all parts of Switzer­land. 18 in­dus­try as­so­ci­a­tions com­pleted a con­sol­i­dated sur­vey for their en­tire in­dus­try. The eval­u­a­tion of re­sponses gives a snap­shot of the cur­rent eco­nomic cli­mate in Switzer­land. The re­sponses have not been weighted and economiesu­isse does not claim that the con­clu­sions made are rep­re­sen­ta­tive.