July 25, 2021

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Delay on Suez Canal could cripple already struggling auto industry – NBC News

3 min read

The blockage in the Suez Canal is straining an already struggling automotive industry, and further delays could create shortages in the U.S. market, if the massive Ever Given container ship cannot soon be refloated.

That would complicate matters for an industry troubled by shortages of semiconductors, as well as seating foam and other petroleum-based materials.

“It only takes a shortage of one part to mess things up,” said Kristen Dziczek, vice president of research for the Center for Automotive Research in Ann Arbor, Michigan.

The auto industry depends heavily upon the canal, which facilitates the move of raw materials, parts and finished vehicles. As of Friday morning, Europe’s Car Dealer magazine reported at least two large auto transport vessels, the Morning Star and the Hoegh London, were blocked by the grounding of the Ever Given. It said several other vessels are heading towards the Suez and could either be forced to anchor if the crisis isn’t resolved, or to divert. Taking the long way around Africa adds about 10 days to a typical freighter’s time at sea.

With the price of oil spiking due to the trade blockage, the White House said Friday that the U.S. has made an offer of help to the Egyptian authorities.

“We are tracking the situation very closely,” White House Press Secretary Jen Psaki told reporters. “We do see some potential impacts on energy markets from the role of the Suez Canal as a key bidirectional transit route for oil, and obviously that’s one of the reasons we offered assistance.”

“We’re going to continue to monitor market conditions and we will respond appropriately if necessary, but it is something we’re watching closely,” Psaki said.

The auto industry is particularly vulnerable right now. Factories around the world closed for months last year due to the coronavirus pandemic and retail inventories are at low levels not seen in decades. In the U.S., for example, J.D. Power estimates there are about 1 million fewer vehicles on dealer lots than is normal this time of year.

Manufacturers have been struggling to rebuild inventories but have faced a variety of challenges, including worsening shortages of the semiconductors now an essential part of every new vehicle. That has forced automakers to close or slow production at scores of assembly lines in recent weeks. And now, there have been reported shortages of petroleum-based goods, such as seating foams.

Even a slight disruption in the supply chain can compound problems in an industry that operates on a “just-in-time” basis.

Even a slight disruption in the supply chain can compound such problems in an industry that operates on a just-in-time basis, with factories maintaining as little inventory as possible,

“Any slight delay in delivery could mean the production lines in Europe will grind to a halt,” said Tom Barnard, editor of Electrifying.com.

While the shutdown of the Suez Canal poses the most severe problems for automotive trade between Europe and the Far East, the American industry is still at risk, Dziczek said.

It could lead to shortages at U.S. dealerships of European vehicle imports, products from manufacturers such as Volkswagen, Volvo, BMW or Mercedes-Benz, if their plants are forced to shut down. And American assembly lines could face shortages of European-made parts and components, such as a Bosch electronic stability control system.

The crisis is further compounded by shipping problems in the U.S., including a slowdown at the Ports of Los Angeles and Long Beach, said Michelle Krebs, principal automotive analyst for Cox Automotive.

“All these things add up,” she told NBC News.

“At present, it is still too early to estimate” the impact of the Ever Given’s grounding, German supplier BASF said in a statement.

But the longer it takes to refloat the skyscraper-sized cargo carrier, the more likely it will be for the global auto industry to face serious disruptions.

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