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Transport disaster hits Black Friday purchasing in Europe, China flooded

TOPSHOT – The aerial photo shows an area in the Erftstadt district of Blessem that was completely destroyed by the floods on July 16, 2021.

SEBASTIEN BOZON | AFP | Getty Images

The 2021 Christmas shopping season could be impacted by out of stock goods and shipping delays as recent floods in Europe and China exacerbate already tight global supply chains.

Western Europe and the Chinese province of Henan – an important transport hub and headquarters of several large companies – are grappling with the aftermath of devastating floods.

The disasters damaged railways in both regions, which are used for the delivery of goods and raw materials. Water entered industrial areas and damaged facilities, machinery and warehouses, supply chain industry companies told CNBC.

“Black Friday and the holiday season for which products (and raw materials) are staged will have the brunt of the impact,” Pawan Joshi, executive vice president of supply chain software company E2open, told CNBC in an email.

“Consumer electronics, dormitory furniture, clothing and appliances will all continue to be in short supply as shopping starts early in school and into the peak Christmas shopping season,” he said.

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

The flood has the potential to give the auto industry, already teetering from a semiconductor shortage, another boost to the mix.

Pawan Joshi

Executive vice president, supply chain software company E2open

Several companies, including Germany’s largest steel manufacturer Thyssenkrupp, have declared force majeure. A force majeure event occurs when unforeseeable circumstances, such as natural disasters, prevent a party from fulfilling its contractual obligations and release it from sanctions.

Some of the industries worst hit by the floods are automobiles, technology and electronics, according to the ones CNBC spoke to.

Car production started again after lack of chips

Automobile production is likely to be affected by production delays as many of the world’s largest automobile manufacturers and their suppliers are based in the flood-ravaged regions.

“The flood has the potential to take another blow to the auto industry, which is already suffering from a semiconductor shortage,” said Pawan.

Production facilities in Germany, the Netherlands, Luxembourg and Belgium are expected to bear the brunt of the flood damage, supply chain risk management company Everstream told CNBC via email. Many suppliers that provide specialty parts for the automotive, technology, and aerospace industries are based there, said Shehrina Kamal, vice president of Intelligence Solutions at Everstream.

“When the floods receded, most major highways and roads were expected to be cleared this past weekend,” she said.

“Given that some companies have issued profit warnings and even declared acts of God, the effects of the flooding are likely to drag on through supply chains for several weeks,” concluded Kamal.

Zurich-based company Klingelnberg, which makes transmission components, warned that the damage to its Hückeswagen plant in Germany could affect its sales targets for 2021.

Disruption of copper is bad news for electronics

The floods could also disrupt the supply of copper, which is used in many products from electronics to electric vehicles.

Flood-hit Henan Province in China is a major center of copper production, said Vivek Dhar, a commodities analyst with the Commonwealth Bank of Australia.

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

“Hopes for copper demand are linked to the rebuilding of damaged infrastructure in central China. China’s electricity sector is a particularly strong driver of copper demand,” Dhar wrote in a note last week.

In Europe, Aurubis GmbH – a provider of high-precision copper wires for the electronics and electrical appliance industry – declared force majeure in the case of deliveries after extensive floods in their plant, according to Everstream Analytics.

Read more about China from CNBC Pro

Meanwhile, in Henan’s capital, Zhengzhou, the disruption could hit a wide range of industries, from automotive to pharmaceuticals to biotechnology, said Ryan Seah, APAC intelligence analyst at Everstream.

“Zhengzhou is a major transportation hub and one of the most important cities in China along the Belt and Road Initiative,” said Seah, referring to China’s gigantic infrastructure plan that spans several countries and continents. He added that the city is home to 91 China-listed companies and a variety of sectors.

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

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