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Another shipping crisis strikes, threatening delays to Black Friday shopping

“Come Black Friday, we can likely expect to see prices rise for all sorts of goods such as consumer electronics, furniture, apparel and appliances,” said one supply chain expert.
Image: Germany flooding
Soldiers of the German armed forces Bundeswehr search for flood victims in submerged vehicles on the federal highway B265 in Erftstadt, western Germany, on July 17, 2021.Sebastien Bozon / AFP - Getty Images file
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The 2021 holiday shopping season could be marred by out-of-stock goods and shipping delays as flooding in Europe and China exacerbate already strained global supply chains.

Western Europe and China’s Henan province — a key transportation hub and home to several major businesses — are grappling with the aftermath of devastating floods.

The disasters have damaged railways used for the delivery of goods and raw materials in both regions. Water rushed into industrial areas, extensively damaging facilities, machinery and warehouses, companies in the supply chain industry told CNBC.

“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 supply chain software firm E2open told CNBC in an email.

“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.

“Consumer electronics, dorm room furniture, clothing and appliances will all continue to be in short supply as back-to-school shopping starts up."

Delays from the distribution of raw materials needed to produce goods will have a cascading effect and disrupt supply chains “for weeks and months,” Joshi said.

Supply chains have already been majorly disrupted this year by crises such as the shortage of shipping containers, the Suez Canal incident and Covid cases — all causing delays at the shipping hubs in Southern China.

Even if there are deals for the peak online shopping season, Joshi said it’s likely there will be fewer and the discounts will probably be smaller. Prices may also go up for some goods, he said.

“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.

Separately, Apple CEO Tim Cook also said during an earnings call last week that freight costs are high.

Several companies, including Germany’s largest steel maker, Thyssenkrupp, have declared force majeure. A force majeure event occurs when unforeseeable circumstances such as natural catastrophes prevent one party from fulfilling its contractual duties, absolving it from penalties.

Some of the worst-hit industries from the floods include autos, technology and electronics, according to those who spoke with CNBC.

Car production is likely to be hammered by manufacturing delays as many of the world’s major automakers and their suppliers are based in regions devastated by the floods.

“The flooding has the potential to throw another wrench into the mix for the auto industry, which is already reeling from a semiconductor shortage,” Pawan said.

Manufacturing facilities in Germany, the Netherlands, Luxembourg and Belgium are expected to bear the brunt of the damage from the floods, supply chain risk management firm Everstream told CNBC via email. Many suppliers that provide specialized parts for the auto, technology and aerospace industries are based there, said Shehrina Kamal, vice president of intelligence solutions at Everstream.

“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,” she said.

“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,” Kamal concluded.

The floods could also disrupt the supply of copper, which is used in many products from electronics to electric vehicles. Henan province is a major copper production hub, noted Vivek Dhar, a commodities analyst at the Commonwealth Bank of Australia.

Copper prices last week rose strongly on supply concerns, he said, as Henan has seen strong growth in copper smelting in recent years.

“Copper demand hopes are linked to rebuilding damaged infrastructure in central China. The power sector in China is a particularly strong driver of copper demand,” Dhar wrote in a note last week.

In Henan’s capital, Zhengzhou, the disruption could hit a broad swath of industries from autos to pharmaceuticals and biotech, said Ryan Seah, APAC intelligence analyst at Everstream.

“Zhengzhou is a vital transportation hub and is one of China’s principal cities along the Belt and Road Initiative,” said Seah, referring to China’s mammoth infrastructure plan that stretches across several countries and continents. He added that the city is home to 91 companies listed in China and a wide range of sectors.

Zhengzhou is also home to a major factory run by Hon Hai Precision Industry, also known as Foxconn. It is the world’s biggest assembly plant for Apple’s iPhones. Foxconn previously told CNBC that it had “activated an emergency response plan for flood control measures in that location.”