Sup­ply chain bot­tle­necks are be­com­ing an eco­nomic risk

Al­most a year ago, weak­en­ing de­mand and work stop­pages were the biggest con­cerns for Swiss com­pa­nies. At that time, the pan­demic and the con­tain­ment mea­sures taken were a par­tic­u­lar bur­den on sales. Even today, many firms re­main pre­oc­cu­pied with the con­se­quences of the coro­n­avirus. How­ever, the sales prob­lem has now trans­formed into a pro­duc­tion prob­lem: four out of five sur­veyed com­pa­nies are cur­rently re­port­ing prob­lems in sourc­ing input prod­ucts. This pro­por­tion is higher than dur­ing the first lock­down in April 2020. Al­most the en­tire in­dus­trial sec­tor is af­fected, in­clud­ing con­struc­tion, whole­sale, and re­tail. The scale of the prob­lem is il­lus­trated by the fact that 80 per­cent of in­dus­try rep­re­sen­ta­tives re­ported sup­ply bot­tle­necks in their sec­tors.

Whilst ini­tially, mainly prod­ucts from Asia were af­fected, sup­ply chain dis­rup­tions are now oc­cur­ring in al­most all re­gions of the world. The Swiss en­ter­prises, most of which are closely linked to the Eu­ro­pean mar­ket, iden­tify Eu­rope as the re­gion most con­cerned, fol­lowed by Asia. The ex­pan­sion of sup­ply chain prob­lems has not only pro­gressed ge­o­graph­i­cally, but also along prod­uct cat­e­gories. Apart from short­ages in com­modi­ties such as steel, alu­minium and lum­ber, com­pa­nies face ris­ing en­ergy prices in Eu­rope and China, for ex­am­ple. This, in turn, leads to acute short­ages of many in­ter­me­di­ate prod­ucts – semi-con­duc­tors, for ex­am­ple. How­ever, there is not only a short­age of semi-con­duc­tors, but also cer­tain plas­tics and chem­i­cal prod­ucts. The short­ages are also ev­i­dent in the down­stream con­sumer goods mar­ket, in­clud­ing every­thing from wash­ing ma­chines and cars to toys and skis.

Higher de­mand, lower sup­ply and prob­lems with trans­porta­tion

The rea­sons be­hind the sup­ply chain bot­tle­necks are man­i­fold: most fre­quently cited by sur­veyed com­pa­nies are prob­lems with trans­port and lo­gis­tics. Closed ports and a lack of con­tain­ers are dis­rupt­ing sup­ply chains. In ad­di­tion, pro­duc­tion stop­pages at sup­pli­ers are de­lay­ing man­u­fac­tur­ing processes. Many Asian fac­to­ries con­tinue to slow or even stop pro­duc­tion due to pan­demic mea­sures; in some cases, there have even been fac­tory clo­sures. Hence, 41 per­cent of the sur­veyed firms re­port corona mea­sures in man­u­fac­tur­ing coun­tries as being re­spon­si­ble for the sup­ply chain bot­tle­necks. Also, en­vi­ron­men­tal events, such as Hur­ri­cane Grace, had an im­pact. Power out­ages ad­di­tion­ally strain pro­duc­tion.

Lim­ited pro­duc­tion ca­pac­i­ties are falling to­gether with in­creas­ing de­mand in the ma­jor­ity of firms. Pent-up pur­chas­ing power, gov­ern­men­tal sup­port mea­sures, and the prospect of an end to pan­demic-re­lated re­stric­tions are fu­elling con­sump­tion. As a con­se­quence, pro­duc­tion can­not keep pace with de­mand.

Firms are forced to in­crease prices, whilst re­frain­ing from down­siz­ing

The bot­tle­necks are not with­out con­se­quences. Longer wait­ing times and ac­cen­tu­ated plan­ning bur­den pose con­sid­er­able chal­lenges for com­pa­nies. Roughly one fifth of firms have had to can­cel ex­ist­ing or­ders or de­cline new ones. This is cur­rently lead­ing to a rev­enue loss for more than half of the firms af­fected.

Com­pa­nies are try­ing to coun­ter­act these ten­den­cies. Many com­pa­nies have stocked up their ware­houses. Around half of sur­veyed firms are look­ing for new sup­pli­ers in other coun­tries, whilst a slightly smaller pro­por­tion is look­ing for al­ter­na­tive sup­ply op­tions in the man­u­fac­tur­ing coun­try. By con­trast, man­u­fac­tur­ing the miss­ing com­po­nents in-house is rarely con­sid­ered, mostly due to a lack of in­ter­nal ex­per­tise. Also, a re­duc­tion of staff is out of the ques­tion for most firms. This is hardly sur­pris­ing in the face of a pro­nounced short­age of skilled work­ers. Nonethe­less, just under six per­cent of sur­veyed firms, es­pe­cially sup­pli­ers to the au­to­mo­tive in­dus­try, are se­ri­ously con­sid­er­ing an ex­ten­sion of short-time work.

Many firms see them­selves forced to ad­just their own prices in the face of ris­ing ef­forts and pur­chas­ing prices. Around half of sur­veyed firms have al­ready in­creased prices, whilst an­other three-fifths in­tend to do so in the com­ing six months. Whilst prices for cer­tain, spe­cific com­po­nents have risen by a fac­tor of 100 or more, in­dus­try rep­re­sen­ta­tives ex­pect a price in­crease of roughly 5% dur­ing the com­ing six months – cal­cu­lated across all af­fected goods. A share of the input price pres­sure will be ab­sorbed by lower mar­gins, but prob­lems with fal­ter­ing sup­ply chains and miss­ing com­po­nents will in­creas­ingly be felt by con­sumers as well.

Dis­rup­tions hin­der the re­cov­ery and ac­cen­tu­ate in­fla­tion­ary pres­sure

The ex­tent of the im­pact of these dis­tor­tions on the global econ­omy will de­pend on the du­ra­tion of the bot­tle­necks. The as­sess­ment of re­spon­dents gives cause for con­cern: af­fected in­dus­tries do not ex­pect sup­ply chain bot­tle­necks to end until next year. Given these con­di­tions, nor­mal­i­sa­tion is likely to delay fur­ther. At the same time, ris­ing prices for raw ma­te­ri­als, en­ergy and in­ter­me­di­ate prod­ucts are in­creas­ing the risk of ris­ing in­fla­tion. This is a dan­ger­ous de­vel­op­ment and could sig­nif­i­cantly cloud the eco­nomic out­look for this and next year.

The sur­vey has been con­ducted by economiesu­isse from Oc­to­ber 13 to Oc­to­ber 19, 2021. 237 or­gan­i­sa­tions took part. The sur­vey cov­ers all parts of Switzer­land. 20 in­dus­try as­so­ci­a­tions com­pleted the sur­vey on a con­sol­i­dated basis on be­half of their in­dus­try. The eval­u­a­tion re­flects the cur­rent at­ti­tudes of the Swiss econ­omy. The an­swers were not weighted and the re­sults do not claim to be rep­re­sen­ta­tive.