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Red Sea crisis seeps into German chemicals sector
World News
2024-01-22 | 03:35
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Red Sea crisis seeps into German chemicals sector
Germany's chemicals sector, Europe's largest, is starting to feel the pinch from delayed shipments via the Red Sea, becoming the latest industry to warn of supply disruptions that have forced some companies to curb production.
Crucial Asian imports to Europe, from car parts and engineering equipment to chemicals and toys, are taking longer to arrive as container shippers have diverted vessels around Africa and away from the Red Sea and Suez Canal following attacks by Yemen's Houthis.
While the German industry has gotten used to supply disruptions in the wake of the pandemic and the Ukraine war, the impact of reduced traffic via the trade artery is starting to show, with Tesla's Berlin factory, the most prominent victim.
Germany's chemicals sector, the country's third-biggest industry after cars and engineering, with annual sales of around 260 billion euros ($282 billion), relies on Asia for around a third of its imports from outside Europe.
"My procurement department is working three times as hard to get something," said Martina Nighswonger, CEO and owner of Gechem GmbH & Co KG, which mixes and bottles chemicals for big industrial clients.
As a result of the delays, Gechem, which makes annual sales in the double-digit millions of euros, has lowered production of dishwasher and toilet tablets because it can't get enough trisodium citrate as well as sulfamic and citric acid.
The company is therefore reviewing its three-shift system, Nighswonger said, adding the ripple effects from the transport squeeze could remain a problem for at least the first half of 2024.
This is causing frank discussions with customers, Nighswonger added.
"If we get three truckloads instead of six, each customer only gets part of their order quantity, but at least everybody gets something," she said.
Bigger specialty chemicals maker Evonik said it was being hit by "short notice routing changes and delays," adding that some ships had changed direction as many as three times within a few days.
The company said it was trying to mitigate the impact by ordering earlier and switching to air freight, which is considered a stopgap because some chemicals cannot be transported by plane.
German industry body VCI has long pointed to the dependence on Asian imports, saying that while production outages should be limited to individual cases, import delays via the Red Sea were an additional burden for an already weakened industry.
"The effects are particularly noticeable in medium-sized fine and specialty chemicals companies," VCI chief economist Henrik Meincke said, adding these companies often source a sizeable proportion of their raw materials from Asia.
The Red Sea transport crisis comes as Germany's economy is already under pressure due to a recession and high labor and energy costs. According to S&P Global, Europe's chemicals sector, cars, and retail are the most vulnerable.
In addition to delayed imports, chemicals groups point to higher fuel costs, as tankers transporting crucial raw materials take around 14 days longer to arrive, adding these costs can only be partially passed on to customers.
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