Economic Survey 2021-22: The effect of Global Supply-Side Disruption

31 Jan 2022 , 03:14 PM

Even though the world economy recovered in 2021, it is faced with serious supply-side constraints ranging from delivery delays, container shortages and semiconductor chip shortages, the Economic Survey 2021-22 document said.

Shipping Container Shortage and Rising Trade Costs:

The country’s latest economic survey emphasises the Drewry’s Composite World Container Index to monitor the stress in container shortages. As of January 20, 2022, the index stands at US$ 9,698.33 per 40ft container. This is US$ 6,656 higher than the five-year average and remains 82% higher than a year earlier.

“Such a significant rise in price for a prolonged period indicates that the disruptions in the global container market are not yet over and will continue to impact the global sea trade,” the Economic Survey said.

Also, the Survey highlighted that the freight prices on major global sea routes have observed an upward trend during the same period.

Highlighting the impact of container shortages, the Survey, stated that the shortages also impacted the Indian sea trade. According to the Federation of Indian Export Organisation set up under the Ministry of Commerce and Industry, the lack of containers has resulted in rising sea freight rates in the range of 300% to 350%.

Further, the Survey explained that “the production of the new containers has slowed since 2019. Simultaneously, a rise in the disposal of containers has also been observed for the same period. Thus, the overall growth in the containers has fallen from 11 per cent in 2019 to 5 per cent in 2021. Unless the production is ramped up significantly across the globe, this will remain a persistent problem.”

Semiconductors industry spillover in the automobile industry:

The Economy Survey 2021-22 takes note of a report by investment bank Goldman Sachs 2021 stating that the supply chain disruptions in the semiconductor industry have spillovers in over 169 industries. The manufacturing of semiconductors requires a large amount of capital and has an average gestation period of 6-9 months. Moreover, it has a fairly long production cycle of about 18-20 weeks.

Hence, the survey said, “any recovery from the supply chain disruptions will be a slow and costly affair.”

The report further stated that microchips and semiconductors account for about 4.7 per cent of value added by the automotive industry. With the delay in supply, the average lead time in the automobile industry for 2021 has been around 14 weeks globally.

“India has also experienced similar trends in the automobile sector,” the Survey said.

As per data from the Society of Indian Automobile Manufacturers (SIAM), carmakers sold 219,421 passenger vehicles in the domestic market in December 2021, down 13 per cent (YoY).

“This is not a demand problem but a supply-side issue,” the Survey adds.

The information from various car manufacturers’ websites reveals a cumulative pendency of over 7 lakh orders, as of December 2021.