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Europe’s Auto Industry Needs Quick End To Suez Blockage

Europe’s Auto Industry Needs Quick End To Suez Blockage.

“This blockage will add more pressure to an industry already facing multiple supply chain risks from semiconductor shortage, rising shipping costs, long port delays due to Covid-19”

The European auto industry in general and Italy, Spain and Turkey’s in particular look vulnerable to any extended delay in shipping through the Suez canal after it was blocked March 23 when the monster container ship Ever Given ran aground, according to Fitch Solutions.

Any extended delay will add more pressure on European automakers, highly dependent on a supply of crucial components from Asia, and still trying to recover from the coronavirus lockdowns and currently reeling from a semiconductor shortage, Fitch Solutions said in a report.

Production cutbacks can be expected within a week of the blockage, while yet another supply chain mess is likely to increase so-called “near-shoring”.

Efforts to refloat the ship are gathering pace, but currently don’t appear to be close to succeeding.

“We believe this blockage at the Suez Canal will add even more pressure to the Autos industry, which is already facing multiple supply chain risks stemming from the semiconductor shortage, rising shipping costs as well as long port delays due to Covid-19 screening measures,” Fitch Solutions said.

“Automakers in Europe will be forced to reduce their vehicle production output to ensure that they do not run out of components and are forced to suspend operations. This is because, despite the ongoing supply chain diversification efforts of European automakers, the industry remains dependent on Asia to supply it with the majority of its required autos components and this is a key trade route between the two regions that has been impacted,” Fitch Solutions said.

The report said Italy’s auto industry seems prone to the most severe disruption if the blockage isn’t removed soon, while Turkey and Spain look vulnerable too. The shortage of chips is already straining automakers’ supply chains.

“If the automakers in the region are unable to receive much needed chips they will be forced to suspend operations. We note that chip impact will be more immediate than the wider supply chain disruption given that automakers are already running critically low on chips. We therefore believe that automakers will start cutting production back within a week of the Suez Canal blockage occurring,” Fitch Solutions said.

An earlier report by Automotive News Europe said automakers like VW’s Audi and BMW were watching the situation, but so far hadn’t seen any impact on production.

Fitch Solutions said if the blockage isn’t cleared soon, ships will have to re-route around South Africa adding between 1 and 2 weeks to journey times. This would also add to security risks from travel close to the East Africa coast. Some shippers might switch to air cargo for more critical components. All this would add considerably to costs.

   The salvage company overseeing the rescue effort has warned it could take weeks to dislodge the Ever Given, which was wedged into the canal during a sand storm, according to Reuters.


 

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