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Supply chains are a vital component in the automotive industry. They ensure timely sourcing of raw material, semi-finished articles, and finished products. This is true for both the manufacturer and the auto dealers. Globally, the automotive industry is a multi-billion dollar sector. Its supply chains stretch both domestically and beyond the borders. Any disruption in any part of the supply chain can affect both the demand and supply in the automotive sector.
The COVID19 pandemic has adversely affected the automotive supply chains. It has led to huge fluctuations in the demand and supply of components, spare parts, and even complete automobiles. This trend is likely to continue in the first half of 2022. Gina Raimondo, the US Secretary of Commerce has stated that though the supply chains will continue to recover, they will take a ‘number of months’ to normalize.
The pre-pandemic period was an ever-rising phase for the automotive industry. Fitch Ratings have predicted that the automotive industry will improve in 2022. At the same time, the supply chain risks will continue to loom over. Although the global sales will increase, they will continue to remain 6% lower than the 2019 pre-pandemic levels.
There will be numerous effects of the present scenario on the Automotive Supply chains in 2022. Some of them are:
The automotive industry will continue to be affected by uncertain material supply. Suppliers will be hit by bottlenecks in the global supply chains. This will affect the production, cost of automobiles, and their sale.
The automotive industry depends on semiconductors. Modern-day vehicles are equipped with a large number of sensors and ICs for advanced functions. Due to a dip in semiconductor production, its supply to the automobile sector is sure to hit production.
Due to the likely extension of the pandemic in 2022, there will be a tight supply of raw material in the automotive sector. Increased prices and lesser supplies of materials like plastic resin and steel escalate costs. It will force the automakers to restrict production.
The automotive sector, in the pre COVID19 era, used the ‘Just-in-Time’ inventory model. They would procure raw material just before production. In 2022, the automotive inventory managers will stock up material for future production runs. This can further lead to price functions of raw materials. In the extreme scenario, it can result in hoarding.
Companies will take up R&D activities to supplement shortages with innovative methods. There will be a rise in R&D activities and the automotive industry will focus on fulfilling their needs locally. It will lead to the creation of new supply chains which will sustain a part of the automotive industry.
Due to increased shipping rates & labor charges, the automotive supply chains will remain expensive. This will adversely affect the pricing of the finished goods. The profits will thus get limited. It may also affect the purchasing capacity of the buyers.
EVs will be the buzzword in 2022. Due to the blockages in the IC engine supply chains, companies will shift attention to green vehicles. Combined with the govt. incentives, the automotive sector is bound to see a rise in electric vehicles.