Supply Chain Disruption into 2022

Part 1: Materials

There have been dramatic and long-lasting effects to the global supply chain as a result of the coronavirus. In our previous version of the Falvey Foresight, we discussed the shipping crisis we are experiencing, some contributing factors, and a few practical examples of downstream effects on the cargo shipping market. With some experts forecasting the status of the supply chain industry expected to remain disrupted into mid-2022, here are considerations that may affect potential accounts for brokers, underwriters, and those in the marine cargo insurance industry.  

Construction materials

Lumber was the most-cited material shortage (31%), followed by steel or electrical supplies other than copper wire (11%) and lighting supplies (10%). Fuel, copper, steel, and aluminum have each experienced modest price increases, while concrete’s price has slightly decreased. There is strong demand but supply chain supporting issues.

Semiconductors

Many manufacturers worldwide are having trouble securing supplies of semiconductors, delaying the production and delivery of goods, and increasing prices. Several factors are driving the crunch, which first affected the auto industry. The shortage is spreading from cars to consumer electronics. With the bulk of chip production concentrated in a handful of suppliers, analysts warn that the crunch is likely to last through the rest of 2021. Materials most vulnerable in semiconductor production include wet chemicals, solvents, photoresists, gases, and substrates. Several semiconductor process materials in the petroleum supply chain are also running short. Those materials include acetone, PGMEA, NMP, and IPA, and several solvents.

Plastics

Another shortage complicating business is plastics. Food packaging, automotive components, clothing, medical and lab equipment, and countless other items rely on plastic. Since March 2020, several factors have been putting severe strains on the supply of plastic raw materials, base plastics, and compounded plastics. This shortage has hit plastic product manufacturers very hard. The demand for plastics continues to surge, especially for food packaging and automobile components plastics production. Plastics required by high purity chemical providers for packaging and wet processing equipment are experiencing raw material price increases due to availability issues.

Chlorine

The swimming pool boom from the pandemic created a higher chlorine demand, thus contributing to a shortage. There was also a manufacturing lab fire in August of 2020 in Louisiana that only further affected the shortage. 

Gas, Oil, Fuel

There is not so much a shortage of these resources, but a shortage of qualified drivers. According to the National Tank Truck Carriers, 20-25% of tank trucks in the fleet are parked due to the shortage of qualified drivers. The driver shortage has been an issue for a while, but the pandemic multiplied it. This has contributed to the increase in fuel prices.

Other Raw Materials

As countries work to transition to green energy, the demand for copper, lithium, nickel, cobalt, and other rare earth elements is soaring. And these raw materials are vulnerable to price volatility and shortages as limited access to known mineral deposits is another risk factor. Only three countries together control more than 75% percent of the global output of lithium, cobalt, and rare earth elements – the Democratic Republic of Congo, China, and Australia. Constraints on the supplies of their raw materials — especially polyethylene (PE), polypropylene (PP), and monoethylene (MEG) — are leading to factory shutdowns, sharp price increases, and production delays.

Commodity types

As we look at what material shortages are being seen in the market, it may be useful to think about what commodity types or general categories of products Falvey or similar organizations deal with. Shortages in certain component parts or raw materials in one part of the market can have rippling effects to many products. The materials shortage of plastic can impact consumer goods and electronics as heavily as the lack of semiconductors and silicone chips. A trend that we have recognized lately is an increase in the stockpiling of essential components and raw materials in bulk from some of our assureds in order to mitigate risk of future shortages or kinks in the supply chain. This may result in higher values of stock than average or larger shipments. It is recommended that we understand the product flow of our assureds and if there is any threat of shortage of materials that could significantly affect their business practices.

The World Economy’s Supply Chain Problem Keeps Getting Worse - Bloomberg

Construction material shortages to continue in 2021 (worldconstructiontoday.com)

Shortages are Affecting the Chemical Industry - Trinity Logistics

2021 Supply Chain Chaos - Pulp,Packaging, and Freight...Oh My! - Barcode Blog (smithcorona.com)