melliand International 2/2022: The world has ...
melliand International 2/2022

The world has changed dramatically

Michael Pöhlig (Source: IVGT)
Michael Pöhlig (Source: IVGT)

The images and news from Ukraine have affected us all deeply. The unthinkable has become a terrible reality: War in Europe. The humanitarian and economic consequences are not yet foreseeable. In addition, the corona pandemic continues to impact society and the global economy. The Ukraine crisis has hit the economy in the midst of recovery from the Covid-19 pandemic.

The exact impact of the Russia-Ukraine war on the German and European economies cannot yet be quantified. European industry has faced disrupted supply chains, uncertain energy supplies and other disruptions to core business since the corona pandemic began 2 years ago, and these have now been exacerbated by Russia's hostilities towards Ukraine.
Many companies are seeing their economic recovery set back by non-delivery, production disruptions and further increases in the cost of energy, raw materials and supplies. Rising material and energy costs have a significant impact on product prices, which can only be passed on to customers to a limited extent.
The industry's hoped-for return to pre-Covid-19 pandemic business levels by 2022 is thus a distant prospect.

Since January 2021, natural gas prices in Germany have increased 8-fold and electricity prices 5-fold. A further increase in energy costs has been recorded since the start of the war. Many companies have hardly any leeway left or already have their backs against the wall financially. Politicians are called upon to intervene in the short term. Noticeable relief for small and medium-sized enterprises (SMEs) in terms of energy prices is necessary.
Should gas become scarce in Europe because supplies from Russia are further restricted or completely cut off, the situation for energy-intensive companies in the textile industry could become even more dramatic and threaten their very existence. In this case, there is a threat of skyrocketing energy prices at an already historically extremely high price level. In the event of a possible disruption to the gas supply in Germany, many companies would have to stop purchasing gas. This would have dramatic economic consequences for the entire textile industry. Systemically important companies would continue to be supplied, but they would also be affected – through their suppliers. The supply chains would then face an unprecedented burden. This would also affect life-saving supply chains in Germany, such as medical textiles or protective clothing for the armed forces and police.

In addition to dramatically rising energy and material prices, the Russia-Ukraine war is impacting the economy in the form of sanctions and disrupted supply chains. The current situation is likely to further exacerbate supply bottlenecks in Germany and the EU. Many intermediate products are already hard to come by or even completely unavailable due to the disruptions caused by the pandemic. The war has heightened this problem. According to a survey conducted by the IVGT in February 2022, German textile companies are (still) short of fibers (including glass and carbon fibers), yarns, cotton fabrics, nonwovens, polyester, polyacrylic, polyamide 66, para and meta-aramids, canvas, dyes, textile auxiliaries/chemicals (hydrochloric acid and caustic soda are still in short supply), plastic granules, adhesives, cardboard, films and spare parts.
The situation in container shipping also remains tense and is frequently characterized by delays, scarce transport capacities and significantly increased prices for sea transports. Container ships are currently avoiding the Black Sea due to the conflict and are taking less direct and significantly more time-consuming and costly routes. The detour of cargo ships, together with high energy prices, is having an impact on freight rates and delivery times, and thus also on supply chains from the Far East. Added to this are the strict Covid-19 measures in China, which are leading to interruptions in production and in some cases to temporary closures of individual ports.

Triggered by the situation in Ukraine, the supply bottlenecks in Germany are likely to be aggravated by a lack of truck drivers. Almost half of the truck drivers employed here come from Eastern Europe, many of them from Ukraine. The manufacturing sector and related supply chains will feel the effects of the pandemic and war for a long time to come.
There is reason to fear that the force of the strongly price-driving factors such as material and energy costs, and bottlenecks in global transport capacities, will not be overcome so quickly. We will probably experience a longer phase of uncertainty.
The resulting challenges are great, but also offer opportunities for redesigning processes and supply chains. The growing awareness of the general public and the economy for sustainable products is also playing an ever-increasing role.
The sustainable orientation of the supply chain is maturing into a significant competitive factor. Socially and ecologically produced goods are in greater demand than ever before. I am convinced that the trend for greener products in the EU will continue to grow.
This crisis can also be an opportunity for the European textile industry.
Michael Pöhlig
Managing Director
Industrieverband Veredlung – Garne – Gewebe – Technische Textilien e.V. (IVGT)

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