Diapers to yogurt, global firms face higher costs amid supply-chain woes

(Reuters) – Results from companies Procter & Gamble Co and Danone SA as well as phone maker Ericsson on Tuesday show higher costs and supply chain disruptions, signaling more margin pressure for global firms and higher prices for shoppers.

Panic-buying at the start of the pandemic led to mass shortages of everything from toilet paper to packaged foods. Global lockdowns and labor shortages crimped supply chain movement and caused lasting log-jams at ports from China to California.

Many companies have leaned on price increases to offset higher prices for materials needed to make and ship essential necessities like diapers and bottled water. Executives and analysts have said price increases will linger into next year.

Procter & Gamble, which noted its first-quarter operating margins were squeezed, now expects a hit of about $2.3 billion in expenses this fiscal year, compared with a prior forecast of about $1.9 billion.

The company is blaming higher raw material costs as well as diesel and energy prices, and said it does not expect those issues to ease up anytime soon.

Danone, which sells Activa yogurt and Evian bottled water, warned of growing inflationary pressures next year after sticking by its 2021 outlook on Tuesday, pledging its operating margins will be protected by productivity gains and price increases.

“Like just about everyone across the sector and beyond, we see inflationary pressures across the board. What started as increased inflation on material costs evolved into widespread constraints impacting our supply chain in many parts of the world,” said Danone’s finance chief Juergen Esser.

Sweden’s Ericsson told investors on Tuesday global supply chain issues will still be a major hurdle.

“Late in Q3 we experienced some impact on sales from disturbances in the supply chain, and such issues will continue to pose a risk,” Chief Executive Officer Börje Ekholm said in a statement.

The company was not able to deliver certain hardware to its customers due to a chip shortage at suppliers, coupled with logistics problems, it said.

Electric vehicle maker Tesla Inc is due to report results on Wednesday. Investors are closely watching the car maker’s margins. Chief Executive Officer Elon Musk has previously said the company is spending heavily to fly car parts around the world to meet demand, while at the same time working to cut costs at its factory in China by sourcing more local parts.

Some investors want to see how those costs add up.

“I think that there is probably a headwind to margins. They’re paying more for components,” said Gene Munster, managing partner at venture capital firm Loup Ventures, an investor in Tesla. “I think that would be a huge positive if they can raise auto gross margin in this environment.”

(Writing by Bernard Orr and Anna Driver; Editing by Nick Zieminski)

Global supply chains buckle as virus variant and disasters strike

By Jonathan Saul, Muyu Xu and Yilei Sun

LONDON/BEIJING (Reuters) – A new worldwide wave of COVID-19. Natural disasters in China and Germany. A cyber attack targeting key South African ports.

Events have conspired to drive global supply chains towards breaking point, threatening the fragile flow of raw materials, parts and consumer goods, according to companies, economists and shipping specialists.

The Delta variant of the coronavirus has devastated parts of Asia and prompted many nations to cut off land access for sailors. That’s left captains unable to rotate weary crews and about 100,000 seafarers stranded at sea beyond their stints in a flashback to 2020 and the height of lockdowns.

“We’re no longer on the cusp of a second crew change crisis, we’re in one,” Guy Platten, secretary general of the International Chamber of Shipping, told Reuters.

“This is a perilous moment for global supply chains.”

Given ships transport around 90% of the world’s trade, the crew crisis is disrupting the supply of everything from oil and iron ore to food and electronics.

German container line Hapag Lloyd described the situation as “extremely challenging”.

“Vessel capacity is very tight, empty containers are scarce and the operational situation at certain ports and terminals is not really improving,” it said. “We expect this to last probably into the fourth quarter – but it is very difficult to predict.”

Meanwhile, deadly floods in economic giants China and Germany have further ruptured global supply lines that had yet to recover from the first wave of the pandemic, compromising trillions of dollars of economic activity that rely on them.

The Chinese flooding is curtailing the transport of coal from mining regions such as Inner Mongolia and Shanxi, the state planner says, just as power plants need fuel to meet peak summer demand.

In Germany, road transportation of goods has slowed significantly. In the week of July 11, as the disaster unfolded, the volume of late shipments rose by 15% from the week before, according to data from supply-chain tracking platform FourKites.

Nick Klein, VP for sales and marketing in the Midwest with Taiwan freight and logistics company OEC Group, said companies were scrambling to free goods stacked up in Asia and in U.S. ports due to a confluence of crises.

“It’s not going to clear up until March,” Klein said.

MORE PAIN FOR AUTOMAKERS

Manufacturing industries are reeling.

Automakers, for example, are again being forced to stop production because of disruptions caused by COVID-19 outbreaks. Toyota Motor Corp said this week it had to halt operations at plants in Thailand and Japan because they couldn’t get parts.

Stellantis temporarily suspended production at a factory in the U.K. because a large number of workers had to isolate to halt the spread of the virus.

The industry has already been hit hard by a global shortage of semiconductors this year, mainly from Asian suppliers. Earlier this year, the auto industry consensus was that the chip supply crunch would ease in the second half of 2021 – but now some senior executives say it will continue into 2022.

An executive at a South Korea auto parts maker, which supplies Ford, Chrysler and Rivian, said raw materials costs for steel which was used in all their products had surged partly due to higher freight costs.

“When factoring in rising steel and shipping prices, it is costing about 10% more for us to make our products,” the executive told Reuters, declining to be named due to the sensitivity of the matter.

“Although we are trying to keep our costs low, it has been very challenging. It’s just not rising raw materials costs, but also container shipping prices have skyrocketed.”

Europe’s biggest home appliances maker, Electrolux, warned this week of worsening component supply problems, which have hampered production. Domino’s Pizza said the supply-chain disruptions were affecting the delivery of equipment needed to build stores.

U.S. AND CHINA STRUGGLE

Buckling supply chains are hitting the United States and China, the world’s economic motors that together account for more 40% of global economic output. This could lead to a slowdown in the global economy, along with rising prices for all manner of goods and raw materials.

U.S. data out Friday dovetailed with a growing view that growth will slow in the last half of the year after a booming second quarter fueled by early success in vaccination efforts.

“Short-term capacity issues remain a concern, constraining output in many manufacturing and service sector companies while simultaneously pushing prices higher as demand exceeds supply,” said Chris Williamson, chief business economist at IHS Markit.

The firm’s “flash” reading of U.S. activity slid to a four-month low this month as businesses battle shortages of raw materials and labor, which are fanning inflation.

It’s an unwelcome conundrum for the U.S. Federal Reserve, which meets next week just six weeks after dropping its reference to the coronavirus as a weight on the economy.

The Delta variant, already forcing other central banks to consider retooling their policies, is fanning a new rise in U.S. cases, and inflation is running well above expectations.

‘WE NEED TO SUPPLY STORES’

Ports across the globe are suffering the kinds of logjams not seen in decades, according to industry players.

The China Port and Harbor Association said on Wednesday that freight capacity continued to be tight.

“Southeast Asia, India and other regions’ manufacturing industry are impacted by a rebound of the epidemic, prompting some orders to flow to China,” it added.

Union Pacific, one of two major railroad operators that carry freight from U.S. West Coast ports inland, imposed a seven-day suspension of cargo shipments last weekend, including consumer goods, to a Chicago hub where trucks pick up the goods.

The effort, which aims to ease “significant congestion” in Chicago, will put pressure on ports in Los Angeles, Long Beach, Oakland and Tacoma, specialists said.

A cyber attack hit South African container ports in Cape Town and Durban this week, adding further disruptions at the terminals.

If all that were not enough, in Britain the official health app has told hundreds of thousands of workers to isolate following contact with someone with COVID-19 – leading to supermarkets warning of a short supply and some petrol stations closing.

Richard Walker, managing director of supermarket group Iceland Foods, turned to Twitter to urge people not to panic buy.

“We need to be able to supply stores, stock shelves and deliver food,” he wrote.

(Additional reporting by Anna Ringstrom in Stockholm, Lisa Baertlein in Los Angeles, Hilary Russ in New York, Joe White in Detroit, Lucia Mutikani and Howard Schneider in Washington and Heekyong Yang in Seoul; Editing by Simon Webb, Dan Burns and Pravin Char)