Shipping crisis from floods threatens holiday shopping

Industry insiders are warning that recent bouts of flooding in Europe and China are hitting global supply chains, threatening to drive up prices and cause shipping delays by Black Friday and the holiday shopping season.

Western Europe and China’s Henan province, an important industrial and shipping hub, are both recovering from severe floods.

While travel infrastructure and power have been restored in both regions, the flooding has damaged transportation routes like highways and — especially in China — is disrupting the country’s supply chain, including the production of food, cars and coal.

“Black Friday and the holiday season, for which products (and raw materials) are being staged, will face the brunt of the impact,” Pawan Joshi, executive vice president of Texas-based supply chain software firm E2open, told CNBC.

“Consumer electronics, dorm room furniture, clothing and appliances will all continue to be in short supply as back-to-school shopping starts up, and will trickle into the peak holiday shopping season,” he said.

Black Friday sign outside of store.
The floods could cause short supplies of and higher prices for popular Black Friday and holiday shopping items.
Noam Galai/Getty Images

He said supply chains will be impacted “for weeks and months.”

“Come Black Friday, we can likely expect to see prices rise for all sorts of goods such as consumer electronics, furniture, apparel and appliances,” he added.

In China, Zhengzhou, a city in Henan province, was hit hardest by the flooding last month. Zhengzhou is home to the world’s largest iPhone assembly plant, among other important manufacturing facilities.

Rescuers transfer an elderly person in Weihui City, central China's Henan Province, amid severe flooding.
Rescuers transfer an elderly person in Weihui City, central China’s Henan Province, amid severe flooding.
Li An/Xinhua via ZUMA Press
Rescuers evacuate people from a flooded area in Weihui in central China's Henan Province, on July 26, 2021.
Rescuers evacuate people from a flooded area in Weihui in central China’s Henan Province, on July 26, 2021.
Chinatopix via AP

“As Zhengzhou is a top national transportation hub and Henan province is a major producer of grains, raw materials and some manufactured products like iPhones, we believe the rainfall and flooding will have a material impact on business activity and inflation in the short term,” analysts at Nomura wrote in a note to clients last month.

Foxconn, the company that in Zhengzhou produces iPhones for Apple, said there so far has been no impact on its production facility, though it has had to offer new bonuses to lure more employees.

And in Europe, several companies with operations around Germany, the Netherlands, Luxembourg and Belgium are also feeling the impact, supply chain risk management firm Everstream told CNBC.

A person walks by a Black Friday sale sign
Supply chains will be impacted “for weeks and months” following the global flooding crisis.
Noam Galai/Getty Images

German’s largest steel maker Thyssenkrupp last month declared force majeure, which means the company won’t be able to meet its contractual obligations due to unforeseen circumstances.

And Zurich-based Klingelnberg, which produces gear components for cars, aircrafts and other vehicles, issued a warning that damage to its Hueckeswagen plant in Germany could hurt its revenue targets for the year, according to CNBC. 

“As floodwater started to recede, most major highways and roads were expected to be cleared over the past weekend; however, due to the extent of water damages in some affected industrial areas, manufacturing operations are unlikely to resume as quickly, potentially impacting supply availability,” Shehrina Kamal, vice president of intelligence solutions at Everstream, told CNBC.

“Given that some companies have already issued profit warnings and even declared force majeure, the effects of the flooding will likely continue to ripple through supply chains for several weeks to come,” she added.

The latest headaches in global supply chain come as companies and shipping routes were already being pushed to their limits as the whipsaw closing and reopening of economies around the world test the agility of railway operators, freight shippers, truckers and more.

A shortage of shipping containers has driven a surge in the cost of moving goods around the world, and the blocking of the Suez Canal earlier this year caused its own wrinkles.

And a surge in COVID-19 cases, either in the US or other countries where few people have been vaccinated, threatens to shutter facilities and shipping hubs at any moment.

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