Latin America begins to feel the effects of global shortages

RIO DE JANEIRO, BRAZIL – Fertilizers for Brazil’s powerful agricultural industry, semiconductor chips for Mexican automakers, or a lack of ships to export Colombian coffee: Latin America is also beginning to feel the effects of the global supply crisis.

Although the situation is not critical as in the United States, where the Christmas season is threatened, the supply chain in some Latin American countries is beginning to be stressed, as the region is a net importer and depends on world trade.

Since restrictions on mobility and economic activity began to be relaxed due to the Covid-19 pandemic, demand for goods and services has experienced a sudden growth that manufacturers and shippers have not been able to respond to, creating bottlenecks in different parts of the world, especially in Asia and the United States.

The following is a summary of the current situation in the major Latin American economies.

BRAZIL

The collapse of Asian ports is impacting Brazil, the large Latin American economy and one of the world’s largest food exporters, as fertilizers for agribusiness come mainly from China, its leading trading partner.

It is also being affected by the embargoes imposed by several countries on Belarus, one of the largest exporters of potassium, the raw material used to manufacture fertilizers, Luis Eduardo Rangel, special advisor to the Ministry of Agriculture and Livestock, told Efe.

Although the analyses “do not indicate an immediate crisis”, the effect could be felt in the 2021-2022 harvest, so Brazil is closing contracts with other suppliers to reduce a possible shortage, Rangel said.

According to the Frente Parlamentario de la Agropecuaria, the container crisis already had a negative impact of US$ 1 billion on agricultural exports between last May and August.

“The crisis will normalize in a year and a half at the most, and then there will be plenty of containers,” Roberto Gusmão, president of the Port of Suape (northeast), one of the country’s main ports, told Efe.

Some products, such as Chinese toys, are also becoming scarce in some cities, and several automobile factories have had to slow down their operations due to a lack of parts, such as semiconductors.

MEXICO

The shortage of semiconductor chips is most acute in Mexico’s powerful automotive industry, the main component of the country’s industrial GDP, and specialists say it could largely explain the 0.2% quarterly drop in GDP between July and September.

“We are very vulnerable because we import many products, not only from China but also from the United States,” Pablo López Sarabia, a professor at the Tecnológico de Monterrey, told Efe.

Mexico, he added, is also suffering a “double impact”: in recent times, it has faced blockades by teachers for salary demands on the railways in the western state of Michoacán, affecting access to the port of Lázaro Cárdenas, a key port for the Pacific.

Apart from the automotive sector, the retail industry is also being hit, and there is a shortage of products in high demand during the pandemic, such as bicycles.

Mexico’s central bank attributes part of the rise in inflation to these factors, which is close to 6% so far this year, double the official target. “Studies indicate that supply chains will surely not recover until almost the end of 2022 when they begin to normalize,” warned Professor López Sarabia.

COLOMBIA

Colombians could have problems finding some Christmas gifts such as toys, liquor, electronic products, and household appliances, but what they will feel above all is an increase in prices, according to specialists.

“Shortages help to increase prices, but the biggest impact is in the logistics costs that have risen extraordinarily,” the president of the National Association of Exporters of Colombia (Analdex), Javier Diaz, told Efe.

A container usually brought from China at the cost of 2,200 dollars today costs between $20,000 and $22,000: “The costs have multiplied by ten, and that is not going to be assumed by the seller,” he said.

For the expert, the solution in Latin America may take even longer than in the rest of the world: “We are barely 4% of the shipping lines’ business, we are not a priority. At least throughout 2022 we will have this complicated logistics and high costs.”

Congestion in ports such as Los Angeles in the United States has also harmed exports, and an operation that used to take 40 days is now taking 75 days. For this reason, said Diaz, many operations, mainly coffee and sugar, were transferred to Cartagena, in the Caribbean, “to try to meet commitments,” he said.

ARGENTINA

In Argentina, the companies lacking supplies are warehouses, automakers, electronics, footwear, and agricultural machinery manufacturers.

Marcelo Elizondo, international economic analyst and president of the Argentine chapter of the International Chamber of Commerce, told Efe that small businesses (SMEs) are the most affected.

The lower supply of freight and higher transport prices imply a “worsening” of import problems in Argentina, where licenses and foreign currency are already restricted, said Elizondo.

If Argentina has “increased dollar outflows” because it has to pay for the increased cost of logistics services, “there will be an exchange rate impact,” he explained.

The triple crisis the United Kingdom is facing could lead to a new “winter of discontent”.
This, he added, could force the government to “squeeze imports even tighter,” and the economy, which in 2020 completed three years in recession, “will not be able to recover”.

The increase in ocean freight costs also affects exports to Asia -the most important continental market for Argentina- which could cause the South American country to “lose profitability” for Elizondo.

CHILE

In Chile, the pressure is not so much in the availability of products, but in inventories and waiting times, especially in durable goods, said George Lever, Research Manager of the Santiago Chamber of Commerce (CCS) to Efe.

“There is a solid increase in the cost of the entire supply chain, from production inputs to the historic increase in the cost of maritime freight,” he warned.

This has led to a sharp increase in prices, especially in segments that operate with lower margins, such as high technology, furniture, automobiles, power tools, sound equipment, and microwaves.

“In the case of Chile, in addition to the reactivation of demand and supply problems due to congestion in production chains, we have the effect of abundant liquidity in households due to early withdrawals of pension funds and the recent strengthening of fiscal transfers,” he concluded.