Exploding prices for raw materials and components, rising freight costs and problems in the supply chain: this triad is currently worrying almost every company - and could end up affecting consumers' wallets. According to credit insurer Euler Hermes, the current unprecedented situation is hitting the German economy particularly hard. The economic recovery following the deep coronavirus recession in 2020 has led to companies around the world stockpiling their inventories. However, local companies in particular are often left behind, as the economists at the Allianz subsidiary noted in a study published on Monday.

"Hoarding is currently the order of the day in global trade," said the head of Euler Hermes in Germany, Austria and Switzerland, Ron van het Hof. "However, the USA is clearly ahead in the race for goods - partly due to the earlier reopening." The US economy got back on track much earlier and more vigorously than in Europe this year. As a result, deliveries of goods from China to the USA are currently increasing by around 30%, compared to only around 10% to Europe, according to the study.

Rising demand, falling inventories

This has been a huge problem for German industry for months: although demand for machines "Made in Germany", for example, is booming after the coronavirus slump in 2020, there is often a lack of materials to process the steeply rising order backlogs: according to a recently published survey by the Munich Ifo Institute, 64% of companies are now complaining about bottlenecks and problems with advance deliveries as an obstacle to their production. "Companies already reported a record figure in the previous quarter, and this has been significantly exceeded once again," said Ifo expert Klaus Wohlrabe. Manufacturers are currently still meeting demand from their warehouses, "but these are now also emptying noticeably".

The economic recovery in Germany is therefore only based on consumer spending for the time being, while material problems will continue to dampen industrial production for the foreseeable future: in addition to the fourth wave of coronavirus, ongoing supply problems for primary products threaten to "jeopardize the still intact German and European economic recovery in the second half of the year", the Federation of German Industries (BDI) has already warned.

Price increases like during the 1974 oil crisis

Another problem is the sometimes sharp rise in purchase prices - generally a typical phenomenon when demand increases but supply does not keep pace to the same extent. The latest data from the Federal Statistical Office shows just how much price increases are having an impact on the purchasing side of companies: Wholesale prices in July were 11.3% higher than in the previous year - the sharpest rise since October 1974 during the oil crisis. The statisticians explain this - in addition to particularly low prices a year ago - with "many currently higher prices for raw materials and intermediate products".

For the year as a whole, the economists at Euler Hermes expect the volume of goods and services traded worldwide to increase by 7.7%, following a decline of 8% in the previous year. However, due to significant price increases, the value of trade is likely to increase by as much as 15.9%, following a decline of 9.9% in 2020. "However, the normalization of supply and demand conditions only accounts for around 15% of this year's increase in the value of traded goods and services, while the increase in inventories accounts for around 50%."

An additional 35% can be attributed to the drastic rise in transportation costs in global trade, which is largely conducted by sea. As transport capacities are scarce, the prices charged by container shipping companies are currently skyrocketing.

The combination of scarce goods and rising prices is also likely to affect consumers. Just one example: the bicycle trade recently complained that some bicycles are only being delivered months late, and the German Bicycle Industry Association (ZIV) expects that prices for bicycles could rise by 10 to 15 %.

From Euler Hermes' perspective, the situation is something of a wake-up call for many companies: "Supply chains can break, whether they are global or local," says Head of Germany van het Hof. "The coronavirus pandemic has shown that - but so has the current flood disaster, which has also disrupted supply chains in our own country." He advises companies to "have contingency plans for various scenarios in their pockets so that they can act quickly and flexibly". In addition, the "quality of relationships" with suppliers is likely to play an increasingly important role. "A partnership-based relationship with suppliers is more likely to pay off in the long term than squeezing every last penny out of them in supply agreements."