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Home / Industry / Manufacturing /  Supply woes start to ease in Europe, but businesses’ costs surge

European businesses are seeing some easing in the delays they face getting hold of parts and raw materials, but supply-chain blockages pushed their costs higher, driving them to raise prices at record pace and fueling inflationary pressures.

Factories around the world have faced shortages since the end of last year, when a surge in demand for goods such as laptops and bicycles took many by surprise at a time when shipping and other parts of the logistics network were in disarray.

Those shortages have worsened over recent months as a result of fresh lockdowns in key Asian manufacturing centers in response to a resurgence in Covid-19 infections.

But over recent weeks, there have been signs of a modest easing of bottlenecks as Asian factories reopen.

A monthly survey of European businesses by data firm IHS Markit that is closely watched by policy makers found that there was some easing of delays during November, but not enough to rein in rising costs and remove the threat of a further rise in consumer prices.

“We are seeing the first signs of increasing availability for some raw materials, but it is still too early to speak of a trend reversal here," said a spokeswoman for German chemical giant BASF SE. “It is currently not foreseeable to what extent this development will stabilize and what influence this will have on prices."

IHS Markit’s measure of the time taken for parts ordered by factories to be delivered to them rose to 21.5 in November from 19.4 in October. A reading below 50.0 indicates that delivery times are getting longer, so the November reading indicates that delays are building at a slower pace.

Despite those persistent shortages, European manufacturers reported a pickup in output during November, contributing to an acceleration in economic growth as activity in the services sector also strengthened. That was a surprise for most economists, who had expected supply problems and a recent pickup in Covid-19 infections to drag on the economy.

But while signs that the economic recovery continues will be welcome news for policy makers at the European Central Bank, they will worry about rising costs, with businesses reporting that they in turn raised their prices at the fastest pace on record.

“Upward pressure on prices has meanwhile intensified far above anything previously witnessed by the surveys," said Chris Williamson, IHS Markit’s chief business economist.

There are some signs that global supply-chain woes are beginning to recede. In Asia, Covid-related factory closures, energy shortages and port-capacity limits have eased in recent weeks. Ocean freight rates have retreated from record levels.

In recent weeks, bottlenecks at British ports have loosened from the conditions that had made them among the most congested in Europe.

“Uncomfortable stability is the phrase of the moment," said Tim Morris, chief executive of UK Major Ports Group, a trade body.

But for many European businesses, freight charges remain much higher and waiting times much longer than they were before the pandemic hit, and are likely to remain so for many months to come.

“There are so many choke points...not enough containers, not enough ships, train problems in Germany," said Marie Müller-Blech, who works at Inge’s Christmas Decor GmbH, a family run company in central Germany.

Since late last year, the most acute shortages have been felt in businesses that use semiconductors. The switch to home working and a heightened emphasis on home leisure activities saw a surge in demand for electronic devices that overwhelmed the semiconductor industry.

There are signs that demand for electronic devices is cooling. According to HSBC, a U.K.-based bank that has long financed Asian trade, global growth in new orders for electronics slowed in October from the previous month.

Some automobile manufacturers, who have had to idle factories because of the semiconductor shortage, are looking forward to a busier 2022.

“By the end of the year, Volkswagen expects an overall slight improvement in semiconductor supply," said a spokesman for the German auto giant. “However, the semiconductor supply situation remains very volatile. We expect bottlenecks in production beyond 2021."

 

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