Another Chinese real estate developer misses a payment.

Almost everything that German factories need to operate is in short supply, not just computer chips but also plywood, copper, aluminum, plastics and raw materials like cobalt, lithium, nickel and graphite, which are crucial ingredients of electric car batteries.

Europewide, exports would have been 7 percent higher in the first six months of the year if not for supply bottlenecks, according to the European Central Bank. Germany is particularly sensitive because of its dependence on manufacturing and trade.

Nearly half of Germany’s economic output depends on exports of cars, machine tools and other goods, compared with only 12 percent in the United States. Economists have begun to predict a “bottleneck recession.”

Already many firms are increasing their inventories of parts, ordering raw materials further in advance and finding creative — some might say desperate — ways to keep products moving out the factory gates. Traton, Volkswagen’s truck unit, said last month that it was cannibalizing hard-to-find components from trucks that had been built but not sold, and reinstalling them in trucks for which there were firm orders.

Businesses are caught in a vicious cycle. Robert Ohmayer, global head of purchasing at Voith, a company based in Heidenheim that builds and equips paper factories and hydropower plants, calls it the toilet paper effect.

Just as panicked consumers hoarded toilet paper at the beginning of the pandemic, companies fearful of running short of key materials are ordering more than they need and stashing them away in warehouses. That has created even more shortages.

Companies had little choice. “We are ordering more to protect our business,” Mr. Ohmayer said.

Longer term, companies have thought about ways to bulletproof their supply lines, for example by buying parts and raw materials closer to home rather than from subcontractors on the other side of the planet. Some political leaders have even suggested that the pandemic could have a silver lining, because it will inspire companies to bring manufacturing back to Europe and the United States, creating well-paying factory jobs.

But disentangling the networks that move products around the globe is not so easy, and maybe not even a good idea, some economists and business managers say.

The slowdown has turned the German economy into a test case of how companies can become less vulnerable to power shortages in China or ships stuck in the Suez Canal. READ THE ARTICLE →

Read more

Article source: https://www.nytimes.com/live/2021/10/05/business/news-business-stock-market