The material shortage and its consequences
2/3/2023 Markets & Industries News

The material shortage and its consequences

Material shortages in industry are easing, but the Corona crisis and the Ukraine war are leaving their mark. Companies have become aware that they need to diversify their supply chains and production locations. Only this ensures their independence from local challenges. The focus is increasingly shifting to Europe and neighbouring EU countries.

A woman and a man discuss a machine
Bar chart of shortage of intermediate products in manufacturing

In a recent survey on material shortages by the ifo Institute, the Leibniz Institute for Economic Research at the University of Munich e.V., 48.4 percent of the companies questioned reported shortages. In December 2022, the figure was still 50.7 percent. For manufacturers of machinery and equipment as well as in the automotive sector, the situation has remained almost unchanged. In metal production and processing the figure has even fallen by 7.4 percent. This is as low as before the start of the shortage crisis, reports the ifo Institute.

“Given the mild winter recession that’s emerging, we would have liked to see a stronger decline,” says Klaus Wohlrabe, Head of Surveys at ifo Institute. “Many companies are only slowly managing to work through their high order backlogs.” The material bottlenecks are also heavily dependent on local developments, such as the Corona situation in China.

Independence through diverse business relationships

China's strict covid policy caused the world's largest container port in Shanghai to come to a standstill for more than seven weeks. The port is an important hub for deliveries to Germany. In total, more than 50 megacities were affected by lockdowns. Energy shutdowns in production facilities and Chinese trade restrictions put additional strain on business relations and supply chains.
Germany purchases more goods from no other country than from China. In 2021 alone, Germany imported goods worth 142 billion euros. The consequences of the local challenges made it clear how dependent Germany really is on China. Since then, suppliers and manufacturers have been looking for alternatives. More and more OEMs are sourcing materials from the home market - and striving to diversify their supply chains. Many German companies are looking towards Europe and neighbouring EU countries.

Investment in neighbouring countries

The Visegrad countries - Poland, the Czech Republic, Slovakia and Hungary - also known as the V4 countries, have become an indispensable part of the procurement market for German companies. They score with geographical proximity, developed transport infrastructure and flexible delivery times to Germany. Companies in Central and Eastern Europe have optimised their production processes: Numerous companies have mastered complex production processes, meet quality standards and demanding norms - at competitive prices. Another advantage: border controls and other trade barriers do not exist thanks to EU membership.

Besides the V4 countries, companies have also discovered the Balkans with comparable advantages for themselves. 595 Solutions GmbH, a manufacturer of magnesium and aluminium lightweight solutions in Europe, for example, announced in January 2023 that it would expand its production site in Romania. An efficient material flow and a high degree of automation are important for the aluminium foundry. To this end, the manufacturer is expanding its hall space from 6,700 square metres to 20,000 square metres, where it will produce magnesium thixomoulding products in addition to aluminium die-cast parts.