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Bottlenecks as risk factors for recovery and value creation

Supply-side bottlenecks and disruptions in global supply chains are currently one of the biggest macroeconomic challenges. The German industry is severely affected due to its high degree of global interconnectedness. In 2021, bottleneck-induced value-added losses in the industrial sector were estimated to exceed 50 billion euros. Similar effects are expected in 2022.

Factors causing supply-side bottlenecks proved to be multi-layered and mutually reinforcing. Impacts of the Corona pandemic are the most significant. Measures such as lockdowns have contributed on the supply side to a temporary reduction in production and transport capacities. As a result, global supply chains have been severely disrupted. These effects are reinforced by structural factors. In addition to rigid production capacities in the short term, a long-term increase in demand, for example for electronic equipment, as well as an increasing shortage of workers in the transportation sector (e.g., shortage of truck drivers) play a decisive role. Furthermore, political factors - such as existing trade conflicts between China and the USA - have encouraged a further intensification.

Bottlenecks arise in different fields

On the one hand, supply-side availability of raw materials and intermediates has deteriorated substantially over the last months. These primarily include iron, metals, and plastics. The manufacturing sector has been affected by the lack of availability almost entirely and across all sectors. Shortages of semiconductors and chips are proving to be the most serious, especially for the German automotive industry.

On the other hand, notable bottlenecks have also developed in the transportation sector, particularly in the shipping of goods, which are reflected in waiting times, delays and soaring transportation costs. Queues at important cargo ports in the USA and China are symbolic for these issues. As a result of increasing waiting times, over ten percent of global container capacity was tied up.

Significant gap between production and new orders

The overall economic development in Germany was noticeably affected by supply-side bottlenecks. Despite the positive development of orders, bottlenecks contributed significantly to a decline in production. As a result, the gap between production and new orders increased within the last months of 2021. In the absence of bottlenecks, manufacturing output would have been seen seven to ten percentage points higher at the end of 2021.

In addition, bottlenecks are fostering dynamic price increase for inputs and raw materials. Companies are exposed to this across all sectors. Soaring prices for input factors have increasingly filtered through to producer prices in the course of 2021. At the end of 2021 producer prices had risen at a rate of well over 15 percent, the fastest pace in many decades. The price momentum is likely to continue in the short term and gradually settle down in the course of 2022.

Substantial improvement in 2023

Overall, bottlenecks are not expected to ease quickly. This is caused by continuing uncertainty due to the Corona pandemic, such as regional lockdowns in China, as well as that existing bottlenecks need to be eliminated first. Such process will also require an expansion of supply and transport capacities, which is likely to be time and cost intensive. A substantial improvement will therefore not occur before the end of this year.