Saturday , 2 December 2023
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Global Economy

Delivery problems force a rethink

A mountain of boxes, carefully welded together. Your content: fitted kitchens. They are a prime example of how international supply chains are currently out of step. They have been standing at the logistics service provider Euro-Cargo-Logistics in the Port of Hamburg for a quarter of a year now and are blocking commutes there. Actually, they should have been transported to Mexico long ago. But operations manager Patrick Rauschenbach fears that they won't be picked up at all. Now they are taking up much-needed space. The ratio of goods volume to storage space is currently 90 to ten, says Rauschenbach.

The causes of the disrupted supply chains are manifold: container shortages, lockdowns in China, a lack of truck drivers, corona-related illnesses, the war in Ukraine – and all of this with a simultaneous sharp increase in demand, especially in e-commerce. While the average storage of a container used to be two to three days, it is now seven days. This also drives up transport costs.

Warehousing instead of "just in time"

For companies that depend on preliminary products and raw materials arriving on time, this situation is a disaster. The Munk company from Günzburg near Ulm has now drawn the necessary conclusions: more warehousing is the new motto.

Around 400 employees manufacture ladders and scaffolding here, and more than 400,000 ladder parts come off the machines every year. The Munk company has been struggling with delivery bottlenecks for months. Before the Ukraine war, there were mainly supply bottlenecks for primary products from China – for example the plasticizer that is needed for the production of the rubber ladder shoe. Since the beginning of the war in Ukraine, supply bottlenecks for steel and screws have been the main problem.

More space for screws

Munk is now rethinking. This week, owner Ferdinand Munk is inaugurating a new hall that he had built for six million euros over the past few months. Materials and preliminary products such as rubber shoes and screws will be stored in this hall in the future in order to have stocks in case of delivery bottlenecks.

This would have been unthinkable years ago, because for a long time "just in time" production with as little warehousing as possible was the measure of all things in the German economy. "'Just in Time' is dead," says Munk. In order not to jeopardize production, increased warehousing is urgently needed.

Safe before cheap

As is the case here, many companies have come to the realization over the past few months that producing safely is more important than producing cheaply. In addition to increased warehousing, diversification of supply chains and relocation of production from the Far East to Europe are other trends.

The supply bottlenecks have been going on for around two years now. Hardly anyone would have expected that, says Klaus Wohlrabe from the ifo Institute in Munich. Last year, many companies assumed that the supply bottlenecks would be resolved within the next quarter – but that turned out to be wrong. The companies are currently assuming that the supply bottlenecks will persist at least until April 2023.

Supply bottlenecks fuel inflation

That also drives up prices, says expert Wohlrabe. The companies could not produce what is actually in demand. Short supply with high demand then automatically leads to rising prices. Added to this are the increased energy prices, which companies also partly pass on to consumers.

After all, inflation may already have peaked. According to an ifo survey, the proportion of companies planning to raise their prices in the next three months has fallen for the second month in a row. Nevertheless, almost every second company is currently planning to raise prices.

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