Lack of supply for companies due to supply crisis puts Mexico’s economy at risk

From the auto industry to producers of toilet paper and cement, Mexican companies have been hit hard by bottlenecks in international supply chains, depressing growth prospects for Latin America’s second-largest economy.

Thousands of vehicles remain stranded in Mexico’s assembly plants waiting for semiconductors, but the consequences of raw material shortages have been felt in almost every sector.

Representatives from retail and auto dealers have said supply problems could impact an expected pre-Christmas sale campaign, known as the “Good end”, Which seeks to encourage consumption, after the blow derived from the restrictions due to the pandemic.

Input deficits have fueled inflation, raising interest rates even as economic growth expectations have been revised downward for Mexico, where a new North American trade agreement has been overshadowed by disputes with its main partner, the United States.

“The repercussion is seen everywhere “said James Salazar, deputy director of economic analysis at local CI Banco. “Although right now it is not a red alert, the problem is that, if this recovery continues, in the sense of greater demand, it will surely put many companies in a predicament ”.

Global logistics problems have forced large vehicle manufacturers, an industry that contributes approximately 3.4% of the local Gross Domestic Product (GDP), to temporarily stop activities on several occasions in recent months.

Sales of the CYDSA conglomerate, which provides refrigerant gases to the automotive sector, decreased by 2% in the third quarter, while those of the automotive segment of the Vitro window, which produces windshields and sunroofs, decreased by 14%, due to the lower production.

In the midst of the decline, Nemak, specializing in the production of aluminum components for clients such as Audi, BMW and Ford, was forced to lower its financial goals for this year, and now expects to earn revenues of up to US $ 3.822 million from the US. $ 3.9 billion previously projected.

Delays and cancellation of projects

The lack of materials and the delays have overshadowed the good spirits about the better performance that many companies had been showing after the coup that meant the cessation of activities last year to try to contain the contagion of COVID-19.

“The bar had to be lowered”, Said Jonathan Zuloaga, consultant for the Columbus consultancy in Mexico. “Before the ‘view’ was that after the pandemic everything was going to be very good, now all this is having to be incorporated into the perspectives and, yes, they are being less optimistic”.

The economy of the Latin American nation, which had already been suffering from a difficult environment, plummeted 8.5% last year, its worst performance since the Great Depression, and although it is expected to recover around 6% in 2021, analysts recently reduced its forecast.

Mexico’s central bank has estimated that the semiconductor crisis could cost local GDP growth this year almost one percentage point.

For now, difficulties in the supply chain, price pressures and higher operating expenses keep large Mexican corporations with severe headaches.

The cement giant Cemex, with business in more than 50 countries, pointed out that in the third quarter global logistics problems and higher costs affected its operating flow – an important indicator of profitability – despite the fact that its sales grew by almost all of its markets.

“Due in large part to supply chain disruptions, we are reducing our ‘capex’ guidance by $ 100 million (to $ 1.2 billion for this year)”Said Fernando González, director of the firm, whose shares accumulated an 8% drop in the days after his quarterly report.

In the telecommunications industry, Axtel, which offers internet and telephony services to the government and business sectors, estimated the impact of the delays on its business at about US $ 2.5 million for the second half, almost 2% of its revenues. between July and September.

“Lead times of four to six weeks now become five to six months, resulting in the cancellation of time-sensitive projects and a widespread delay in implementation times.”, Stated Eduardo Escalante, CEO of the company.

His biggest rival, América Móvil, of magnate Carlos Slim, also lamented disruptions in the global supply of inputs that, he said, have been denting the supply of mobile devices.

“In general, I think that, throughout the world, throughout Latin America, and that includes Mexico and Brazil, there is a lack of telephones”Said Daniel Hajj, CEO of the company, with operations in Latin America and the United States, as well as Central and Eastern Europe.

Consumers pay

With Christmas just around the corner, the hopes of many companies to boost their sales in the most important business season of the year could be marred due to a lack of inventory.

The Port of Liverpool, one of the main department chains in the country, announced that its stores could lack sufficient supply of some merchandise.

“Nike and Adidas told us that since they produce a lot in countries like Vietnam or China due to the fact of the closures in the factories due to the pandemic, in fact, they face some supply restrictions”Said Enrique Guijosa, the firm’s chief financial officer.

The negative effects of bottlenecks and input shortages have also begun to be felt in the prices paid by final consumers, as companies began to pass the higher production costs to them.

Inflation in Mexico was above 6% in October, more than double the authorities’ goal, and analysts believe that it could continue to come under pressure for the rest of the year.

Gruma, one of the main producers of tortillas – a staple in the diet of Mexicans – said it had to raise the prices of its corn flour and anticipated that next year it could analyze further increases.

The same has happened with Kimberly-Clark de México, which has a broad portfolio of brands that includes Pétalo toilet paper and the popular Kleenex disposable tissues.

“We have announced price increases of 7% on average, which will begin to be implemented at the end of this quarter and will show their full effect by the end of the first quarter of 2022.″ Said the director of the company, Pablo González.