Global supply chain continues to face disruptions ever since the outbreak of Covid-19 pandemic. Of late, China, the second largest economy in the world, has been facing challenges ranging from power crunch to slowdown in its manufacturing sector. The worst ever power outage crisis in China forces most manufacturing units to operate only two or three days a week.
The country has been facing acute power shortage since summer and several of its provinces have witnessed sudden blackouts recently. The sudden power shortage crises in the country are attributed to a rise in demand, weather conditions and measures to cut the use of fossil fuels. Besides this Evergrande, a prominent real estate firm in China, has recently experienced debt crunch, and consequently lead to disturbance in global financial markets. These developments will have consequences on the world economy given the heavy import dependency on China.
Indian manufacturers too face the heat
The power crisis in China affects Indian supply chain, asautomotive, appliance, consumer durables and FMCG companies have been facing shortages of vital components and raw material. Because, China being the world’s manufacturing hub, is hurting supplies of key parts and sub-assembly units for auto, consumer durables and appliance makers in India. The pharmaceutical sector, solar panel and pesticide makers in India too could face a supply crunch according to some experts. As pharmaceuticals and pesticide industry needs several intermediary products used for production which are largely imported from China.
Even though, the Chinese power crisis has not yet showed its full impact on the appliance and consumer durables companies, but they are anticipating that the developments in the neighbouring country may soon impact the supply of semiconductors, motors, aluminium controllers and electronic circuits.
According to some experts in the industry, the limited manufacturing China factories owing to power shortages will likely to impact production of ACs ahead of the summer season. As per the industry estimates, 80-85 per cent of the parts used to manufacture televisions are sourced from China, 65-70 per cent of the components are China-made and 40-45 per cent of components used in washing machines are imported from China. A slowdown in production of these components will hit manufacture of consumer products in India.
Silver lining for steel and textile sectors in India
Through, power shortage in China and its impact on manufacturing affects some import-dependent sectors in India, but not all sectors will be adversely affected by it.
According to some experts, production halt in China could help India emerge as the new textile hub. Because, the textile industries in Jiangsu, Zhejiang and Guangdong are affected due to power shortage, which are major hubs for the product. Another textile hub Xinjiang is affected due to labour issues and this has impacted the textile exports from the country.
According to experts in the textiles industry, China has contributed about 39 per cent to the world’s textile exports before the pandemic. However, its share has now contracted to 31 per cent and analysts indicate it could drop under 30 per cent due to stalled production.
Congestion at ports in US
Ports in China and US are facing severe congestion recently, as solid demand and less Covid wariness is keeping services growing. The approaching Christmas has further ignited peak shipping in Europe and the US, as the container lines are increasing capacity on the Asia-US trades by double-digit percentages. However, port congestion in Asia and the US is diminishing the actual capacity available to shippers resulting in keeping upward pressure on rates.
According to the Institute for Supply Management (ISM) survey report released recently, the double-digit increase in capacity is likely to further stress ports that are already contending with vessel bunching in the early days of peak shipping season. According to the Marine Exchange of Southern California, currently there are 40-plus vessels at anchorage in Los Angeles-Long Beach awaiting space, while terminals each day are working about 30 container ships at berth, with more vessels scheduled to arrive daily.
Given the current level of congestion at major US gateways, the capacity increases of 22 per cent to the West Coast and 14.4 per cent to the East Coast through year-end portend elevated vessel bunching at the ports, congestion at marine terminals, and chassis shortages at ports and inland locations.
According to experts the supply chain disruptions due to port congestion will extend up to the end of 2022. But it remains to be seen how both manufacturing industry in China and global supply chain systems will recover from the existing crisis.
