The US is seeing one of its biggest port closures in nearly half a century as dockworkers went on strike. German car manufacturers may need alternatives to these strategic East Coast ports.
How will German carmakers be affected by US port strikes?
The US is seeing one of its biggest port closures in nearly half a century as dockworkers went on strike. German car manufacturers may need alternatives to these strategic East Coast ports.
“Yes! We have no bananas” isn’t just the title of a funny old song. In the US, it could soon become a reality as around 45,000 port workers along the eastern and Gulf coasts go on strike.
Important produce could be stranded and spoil at ports or on ships at sea. Before the strike began, New York’s Governor Kathy Hochul asked consumers not to stockpile food.
Non-perishable goods like vehicles from Germany will be able to last longer in the salty air but bring their own challenges.
No matter what type of goods, strikes at ports could be yet another shock to global trade and supply chains after shipping was dealt blows by attacks in the Red Sea and low water levels in the Panama Canal. These two factors have already driven up international freight prices and are a reminder of just how delicate supply chains can be.
German vehicle manufacturers safe for now
For German carmakers, the strike couldn’t come at a worse time. Sales — especially of electric vehicles — are sluggish, and the biggest producer, Volkswagen, is going through major turmoil at home. German auto exports to the key market of China have been falling.
At the same time, exports to the US have been growing. Last year, Germany exported around 400,000 vehicles to the US, which is around 10% of total German auto production, says Andrew Kenningham, chief Europe economist at research firm Capital Economics.
Still the strike “has the potential to be a significant additional problem for German manufacturers given that the US is Germany’s largest export market. And auto producers would be among the worst affected,” Kenningham told DW.
“However, this will be a problem only if the strike itself continues for a long time, which we think unlikely given that President Biden has the powers to bring it to an end and will want to do so near to an election.”
Mercedes and BMW waiting out the clock
John McElroy, a Detroit-based auto industry expert, agrees if the strike is short.
“German automakers and suppliers will not be impacted by the port strike if it lasts a week or two because they have likely stockpiled vehicles and parts in anticipation of this happening,” McElroy told DW.
On the other hand, German manufacturers build a lot of vehicles inside America. The US is a major production site for highly profitable SUVs made by Mercedes and BMW in places like South Carolina and Alabama.
“If those vehicles are not shipped to other countries, inventory will start to pile up, and if they run out of room to park those vehicles, they will have to cut production at their US plants,” said McElroy.
Having enough inventory for months
For now, American car buyers will not be affected much as dealers have enough inventory to wait for a strike settlement. Though some customers may be limited in the choice of vehicles they can buy, says McElroy. Only if the strike drags on longer will it make a noticeable impact on sales and earnings.
US and German automakers have abundant inventories in the US, agrees Wendy Qian from Fitch Ratings. They have at least 70 days of inventory and “are focusing on inventory management, which should provide a buffer for potential disruptions in production,” she told DW.
Just as important, German carmakers producing in the US have diversified their supplier base and often have multiple suppliers for even the most basic components.
“A lot of onshoring and nearshoring, for example to Mexico, of the supply chain has taken place after the pandemic and also against the backdrop of lingering geopolitical tensions,” said Qian.
News Credit: DW News
