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As new cases of the Omicron variant of the coronavirus disease
(COVID-19) virus continues to climb worldwide, causing staff
shortages in all sectors, there is a threat of renewed mobility
restrictions and further disruption to global supply chains.
Although it is likely that new restrictions will be less stringent
compared with during the peaks of the pandemic in 2020 and 2021 and
that they will continue to be loosened overall, IHS Markit's view
is that logistics constraints, particularly on sea cargo, will
persist throughout 2022.
The main disruption for Latin American traders comes from
increased shipping costs and long delays to products arriving at
their destinations, considering that the US and China, which are
significantly affected by bottlenecks at ports, are their main
export markets. Exports to those countries have been delayed by up
to sixfold, with goods that previously took weeks to arrive now
taking more than six months, as calculated by industry sources.
Export delays are likely to continue throughout 2022, as some
Chinese ports remain closed because of COVID-19 and lorries and
warehouses suffer from staff shortages in the US.
Agribusiness
Latin American exporters of fruit, meat, and other perishables
were not critically affected by delays until mid-2021, with
perishable goods shipped through direct routes that often avoid
bottlenecks. However, as refrigerated containers (reefers) are now
being used for all merchandise to offset the shortage of regular
containers, reefer scarcity is likely throughout 2022 and into
2023. This is having a clear impact on exporters, with one Chilean
fruit exporter reporting to IHS Markit that a shipment that
previously took 14 days to arrive in Miami now takes at least 34
days, with consequent risks of produce rotting or exporters being
unable to honor their contracts. Companies are also likely to cut
production if they are unable to export or if the high price of
freight makes the business uncompetitive, exacerbating supply
shortages. In Brazil, the sector is risking not being able to get
fertilizers from China in time for the February-May harvest,
although they are likely to resort to other importers in order to
avoid affecting the harvest. In Argentina, strikes by port workers
and lorry drivers over salaries and working conditions are likely
to further disrupt the supply chains servicing agribusiness, the
country's main export sector. Industrial action is very probable in
the one-year outlook as unions step up salary demands amid high
inflation.
Manufacturing
Delays on imports of inputs and shortages of raw materials will
continue to affect Latin America's manufacturing output in the
one-year outlook. According to IHS Markit's purchasing managers'
index (PMI) surveys, Mexican manufacturers reported in December
2021 that ongoing supply-side issues have translated into severe
delays in delivery times and the third-fastest increase in
purchasing prices on record. The PMI notes that both Mexico's
manufacturing output and new export orders, which show
international demand for domestic goods, declined again in
December, continuing a trend since March 2020. In Brazil, new
orders declined in December 2021, but at a slower rate than in
November "amid reports of subdued domestic demand for goods,
sufficient stocks among clients and challenging conditions in the
automotive segment", but new export orders started to increase.
Mexican manufacturers face the additional challenge of unrest by
unions, farmers, and other pressure groups, consisting of blockades
of the railway line that connects the major port of Lázaro Cárdenas
in Michoacán state to the manufacturing states of Guanajuato,
Querétaro, and San Luis Potosí.
Automotive
Carmakers in Argentina, Brazil, and Mexico are likely to face
continuing delays in accessing imported inputs, mainly
semiconductors produced in China because of shortages, until at
least the end of 2022. In Mexico, the enactment of new legislation
providing workers with enhanced unionization rights, including
transparent elections of their representatives, is raising the
likelihood of worker unrest around potentially disputed union
elections. In Brazil, automotive firms have stopped assembly lines
for weeks, with further slowdowns in car production likely in the
one-year outlook, including delays in delivery to final consumers,
and higher out-the-door prices. Prolonged slowdowns leading to
furloughs or dismissals and high inflation eroding salaries are
likely to prompt industrial unrest among metal workers.
Mining
Anti-mining protests by Peruvian local communities are likely to
cause supply chain disruptions via road and project site blockades
through 2022, particularly along the Apurímac-Cusco-Arequipa
motorway (the southern mining corridor), from where 63% of the
country's copper exports are transported. In Chile, which produces
almost 30% of global copper output, there is a risk of disruption
to mining operations because of strikes by mining workers demanding
higher salaries and bonuses in the context of high copper prices in
2022 and the renegotiation of approximately 30 collective
contracts. However, it is likely to be averted by early collective
negotiations, with companies also implementing effective mitigating
plans in case of stoppages and having enough stock to meet export
commitments.
Posted 08 February 2022 by Carla Selman, Principal Research Analyst, Country Risk, S&P Global Market Intelligence and
Carlos Caicedo, Senior Principal Analyst, Latin America Country Risk, S&P Global Market Intelligence and
Jose Sevilla-Macip, Senior Research Analyst, Latin America Country Risk, S&P Global Market Intelligence and
Veronica Retamales Burford, Senior Research Analyst, Latin America Country Risk, S&P Global Market Intelligence
