China’s electricity shortage worsens global supply chain crisis
Chinese factories also known as ‘The world’s factory’ have stopped working for the second time in 2 years. In 2020, when the world needed face masks during the covid-19 pandemic, Chinese factories were closed because of the virus. Now when the world needs other supplies, Chinese factories are closing again; this time because of electricity shortage. China is running out of coal stock, prices have sky-rocketed and power plants are reluctant to buy more coal so power supply has stopped the factories from operating. Estimates show that at least 44% of China’s industrial activities have been affected by power cuts.
Nigeria’s unpreparedness and over dependence on the popular ‘Made in China’ syndrome has placed us at the epicenter of the current global supply chain crisis. Today, the most common commodity ‘pure water’ is becoming a valuable commodity as the price of just 100 bags equates to the country’s minimum wage (N30,000). When was the last time you went shopping? Did you notice that some products were out of stock? When was the last time you tried ordering electronics? Did you face a delay in delivery or an outright cancellation? Why do you think that’s happening? It’s all because of China. This is not a conspiracy theory; it is called a supply chain crisis and this is what is happening in the world right now.
Nigerian manufacturers are running out of raw materials for production due to port constraints and as a result prices of pure water are on the rise, the United States is running out of thanksgiving turkeys and Christmas trees; Australia is running out of timber to build houses, Russia does not have marble beef and octopus in its restaurants, the UK is falling short of carbonated drinks, car makers around the world are running out of chips, there is a shortage of toys, PlayStation and Nike shoes. Why?
The problem started in China last year as the Wuhan virus spread through the country. Factories were forced to shut down on the back of the epidemic and the global economy came to a halt. As early as February of 2020, Harvard Business Review predicted a mayhem. The report stated that “the most vulnerable companies are those which rely heavily or solely on factories in China for parts and materials.” It turns out that Nigeria alongside many other countries do.
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Research from BUSINESSDAY revealed that China produces 28.7 percent of the world’s goods. It also exports goods worth $2.6 trillion dollars every year from toys to cell phones to laptops, make-up to bridal gowns, China makes all of them. It also has cheap labor as well as low taxes. So companies invariably outsource manufacturing to China. It is called the ‘World’s Factory’.
The Ambassador of the People’s Republic of China to Nigeria, Cui Jianchn stated that part of his strategies as an Ambassador is to replicate China’s success in Nigeria by sending young Nigerians to China, understudy the system, get the experience and infuse them into the Nigerian system
“I am hoping that next year after COVID-19, I am thinking of a possibility of how we can get young people from Nigeria to go to China and learn from the Chinese side and get experience. I believe that if China can do that, Nigeria can also,” he said.
“We can apply the Chinese model as a way of eradicating poverty. I think there is a need for the two countries to work on this poverty eradication. You know you have your goal. I think this is a very meaningful thing not only for the Nigerian people but also for the international community,” he added.
Jianchn commended the strong bilateral relations between China and Nigeria over the past 50 years and called for a more holistic, comprehensive approach to build “our bilateral relations in another 50 years”.
It could be recalled that in 2020, China’s factories shut down and it could not supply goods to its customers who had just enough stock to last 15-30 days as a result they subsequently fell short of supplies.
On the 14th of February 2020, FIAT Chrysler automobiles announced that they were temporarily halting production at a car manufacturing factory in Serbia because they could not get parts from China.
Hyundai had to stop plans from Korea because of “disruptions in the supply of parts resulting from the coronavirus outbreak in China.”
The virus soon spread overwhelming one country after another. Factory workers became sick or had to quarantine. Production came to a halt and subsequently promulgated the birth of the current global supply chain crisis.
To understand the depth of this crisis, one must understand the concept of supply chain first. A supply chain is a network that helps a product get from one point (point A) to another (point B). So point A is the factory where the product is made while point B is the retailer from where we all buy the products.
Now getting a product from point A to point B sounds simple but in reality it’s not. Take the latest I-phone 13 for example; where do you think it’s made? China? Well, yes it says it is made in China but China is just one stop along the process. I-phone 13 is basically assembled in China but its parts are imported from 43 countries around the world. So, we could say that the I-phone 13 is made in 43 countries around the world. The chips come from Taiwan, the casing comes from South Korea while the boxes they come in are from Czech Republic. And surprising enough, Apple does not even oversee this manufacturing process, Foxconn does.
In summary, a supply chain involves multiple players, tens of thousands of workers and multiple modes of transport. So one delay at any of these points (like the strike in the Czech Republic) can take the entire supply chain off course for days or even months.
So what happens when there are delays at several points of the supply chain?
For instance, in Taiwan, most of the factories are closed down because of the Wuhan virus, South Korean workers have been sent home due to lock-downs and the truck drivers in Czech republic are not returning to work. What happens then? The entire supply chain comes to a halt, it collapses. And this is exactly what happened in mid 2020 and dove-tailed into 2021. Demands were high and supply stopped coming in. The same is applicable to the ‘PURE WATER’ situation in Nigeria today. The US ran out of ketchup, the UK ran out of milkshakes at McDonald’s and Nigeria is running out of supply of pure water.
With the re-opening of economies globally after the pandemic, demands returned however supplies did not. Factories are still not working full scale, not all workers have returned, many remain unvaccinated while many remain stranded at the wrong side of the border by closures.
Thus, the global market is not ready for the current demand frenzy. The spike in demand first hit the shipping industry. Research from BUSINESSDAY reveals that 90% of global trade happens via sea transportation. The rise in demand led to the rise of shipping. Shipping prices rose 85.5% year on year. The spot rate of last minute bookings rose to $19,000 while the average door-to-door shipping time for cargoes went up by 70 days and ports became overwhelmed with incoming vessels.
The International Chamber of Shipping (ICS) in an open letter stated that “we have all continued to keep global trade flowing throughout the pandemic but it has taken a human toll. At the peak of the crew change crisis, 400,000 seafarers were unable to leave their ships, with some seafarers working for as long as 18 months over their initial contracts.”
Many ports in Nigeria have massive backlogs piling up, Lagos especially facing record backlogs of ships waiting to get unloaded because there are labor shortages at the docks. And then for anything that does get unloaded, labor shortages in the trucking business as well contributes to the disruption chain.
With cargo containers stranded mid sea, ports fell short of boxes. Who makes these boxes? The story comes back to China. It is October 2021 and the world needs more containers but China’s factories are closed again.
Cheap labor is good and low taxes are good for business too but what global supply chains need is reliability. In 2002, China was hit by a SARS epidemic; back then, China accounted for 4.3% of the world’s GDP. When the Wuhan virus hit, China accounted for 16% of global GDP; it had grown four-fold. China is the center stage for the current global supply chain collapse.
As Nigerians prepare themselves for the upcoming end-of-year celebrations, many parents may not be able to give their kids toys or gadgets of their choice, Americans might not have enough Christmas trees to light this December. In the UK, stores have already warned customers that stocks would be limited and discounts would be minimum as supply chains are collapsing.
To be fair, China alone cannot be blamed for this crisis. Lack of alternatives, prediction and preparedness amongst various countries must also be brought into the fray.
The virus from China closed factories but the world suffered because it had not invested in alternatives. Supplies are running out because ports are not prepared to handle increased traffic. Australia is not able to build new houses because it does not have alternative timber sources.
China is the story’s villain but it’s not the only one. Over-dependence on any country is a bad idea. It leaves scope for weaponizing supply chains as well as arm-twisting nations. The supply chain crisis has taught us that it is time to rethink and re-evaluate global partnerships and create new alliances like the QUAD which comprises India, Japan, US and Australia which aims to create alternative supply chains.
Also lessons must be learnt from India so that the next time the world gives us a Wuhan virus, we must strive to be an ‘India’ and aim for self-reliance rather than being a ‘US’ and running out of Ketchup.