In March 2021, a huge container ship wedged across the Suez Canal caused severe disruption to global supply chains. According to one estimate, the blockage held up an estimated 9.6 billion of trade every day. For businesses that rely on global supply chains, a single event like this can wreak havoc. When multiple factors converge, you can face a prolonged crisis. Here, Chris Johnson, director of specialist bearings supplier SMB Bearings, explains why the world is currently facing an unprecedented bearing supply shortage.
Events like the Suez Canal blockage have served to demonstrate the fragility of global supply chains over the last two years. This is especially so in manufacturing industries, like automotive, which rely on just-in-time logistics. Over the last decade or two, buyers have become accustomed to the convenience of quick deliveries from anywhere in the world, whether that is in a consumer market or in a B2B environment.
The supply shocks unleashed by the pandemic provided a painful exposure to the fragility of global value chains and both companies and governments are formulating new ways of operating in a post-pandemic world. For those that rely on miniature bearings, a series of factors have converged to create an unprecedented strain on supply.
Those that rely on bearings are finding that these crucial components are increasingly difficult to get hold of. For example, as exclusive UK agents for EZO bearings manufactured by Sapporo Precision of Japan, we recently received a quote of 690 days for production time. Two years ago, we would have expected it to have been with us within six to eight weeks.
While this might be problematic for amateur hobbyists, it is potentially much worse for certain industries where bearings are key components in vital equipment. Bearing failure can cause major safety issues and bring production to a standstill. Unless you can secure replacement components quickly, the financial costs of lost production can be severe.
The perfect storm
What is most unique about the current situation is that it is truly global in nature. Although some of the factors that are contributing to the crisis predate the coronavirus, it is the pandemic and its impact that bears significant responsibility for the current situation.
Shipping times increased significantly as flights and shipping were cut by approximately 75 percent during the pandemic. As many more people wanted goods shipped, such as personal protective equipment (PPE) during the pandemic, this put increasing pressure on services that were already struggling. The situation is comparable for air freight too. Prices rose dramatically as a result of the pandemic and although they will gradually return to a more sustainable position, they are unlikely to return to pre-pandemic levels.
Rising labour costs and ongoing worker shortages have also been a key factor. Here in the UK, we have seen an increasing number of workers retire early following the pandemic and we have witnessed major shortages of commercial vehicle drivers, with a drastic impact on supply chains. Although the situation is not identical in every country, similar problems with labour supply exist across the world.
As the factory of the world, events in China have a major impact on all of us, particularly those that rely on manufacturing supply chains. There are several factors contributing to labour shortages and rising labour costs in China. An ageing population, combined with a low birth rate and low immigration has resulted in a demographic gap, while a mismatch between the type of jobs available and the skills necessary to fill them has led to an educational gap. With labour costs rising, many companies are relocating production to other Asian countries like Indonesia and Vietnam, a process known as near-shoring.
Increasing energy prices have also resulted in cuts to production. This can be partly attributed to the government’s attempts to reduce pollution, which has forced many manufacturing plants to limit production. However, coal supply problems and other government policies have also contributed. Energy intensive sectors such as metals and cement production are expected to be among the worst hit.
Raw material shortages have also contributed, particularly for stainless steel bearings. China dominates global steel production. Between 2005 and 2018, the country quadrupled its share of the world’s stainless steel, from 12.9 to 52.6 percent. Stainless steel shortages have driven up the cost of bearings. In comparison, ceramic bearings and plastic bearings, which are smaller batch production in any case, have been less severely affected.
In Japan, different pressures are contributing to the shortage. The rising cost of labour at a global level has made it too expensive to outsource production, encouraging some manufacturers to bring production back home. However, the result of this is that capacity is more limited. In some cases, it is extraordinarily high demand that is leading to shortages and increased lead times. That has been the case, for example, for EZO bearings.
Preparing for the storm
The situation is not expected to improve substantially over the next couple of years. In the highly unlikely event that there are no further shocks and disruptions, things might stabilise during this period.
Simply understanding the reality of the current situation is not going to solve the problem, but is the first step toward greater preparedness. Those that have relied on just-in-time deliveries will likely have to fundamentally change their approach to supply chain management, but anyone who has been accustomed to short delivery times is likely to find greater forward planning is key.
Holding stocks is one possible way of preparing for a prolonged bearing shortage. This can allow companies to respond quickly to shortages and protect against future price rises. However, if everyone reaches for this option at the same time it is likely to further increase demand at a time of limited supply. At SMB Bearings, we are doing our utmost to order ahead to ensure a plentiful stock of bearings and we will continue our approach of working closely with our customers to support them with our assistance and expertise.
