Austria’s supply chains have a high risk of failure

Austria’s supply chains have a high risk of failure
Austria’s supply chains have a high risk of failure

The EU has left the corona crisis behind. The trading volume is almost back to the level before the outbreak of the pandemic. Exports within the EU are practically back to pre-crisis levels (see graphic).

The exports and imports of the EU-27 are almost back to pre-crisis levels.

© WiiW

But the world, and thus also the EU and Austria, are still suffering from delivery bottlenecks. There are too few computer chips for the auto industry or too few building materials – just two examples that show the vulnerability of global supply chains in times of Corona.

“The dependency on Asian manufacturers is particularly high for high-tech and medical products, especially deliveries from China,” says Robert Stehrer, scientific director of the Vienna Institute for International Economic Studies (wiiw), who with a team investigated which products and sectors in Austria and the EU are most vulnerable to global economic shocks.

As part of the study, almost 5,000 goods and intermediate products were subjected to a risk analysis based on the factors of market concentration, tendency towards clustering, dominance of individual suppliers and international substitutability.

Product groups most susceptible to delivery problems

  1. Pharmaceuticals – share in world trade: 1.6 percent
  2. Laptops, tablets and cell phones
  3. Telephones and parts thereof
  4. Data processing equipment and storage units
  5. Televisions and radios
  6. Airplanes and parts thereof
  7. Optical devices and instruments
  8. Plastics

Those: KISSES, wiiw

30 percent of EU imports affected

Austria is particularly affected by problems with the supply chain, but not an isolated case in Europe. 30 percent of EU imports and 35 percent of Austrian imports from third countries are made up of products that pose a considerable risk of availability in the event of trade turbulence.

In the case of China’s second most important trading partner of the EU, their share of EU imports is almost half. (see grafic).

Austria’s supplies are particularly vulnerable to economic shocks

© Wiiw

The share of imports in high-tech industries, such as semiconductors, rail vehicles and precision machines, is particularly high. “The high production losses in the automotive industry due to missing chips have shown the painful effects of delivery bottlenecks,” says Stehrer. In the EU27 countries, the proportion of risky imported products is on average just over 30 percent, worldwide the proportion is 27.5 percent.

End products are particularly risky

The proportion of high-risk products in imports is much more pronounced for end products than for intermediate products, both in Austria and in the EU and in global trade. In the case of goods for end customers, the proportion is between 40 and 50 percent, the proportion of risky goods in the area of ​​intermediate products is between 20 and 30 percent.

In an international comparison, Austria is particularly affected in terms of both the import of end and intermediate products, which are susceptible to global economic shocks

© Wiiw

This also means that trade in intermediate products is more regionalized than trade in end products. Although 40 percent of Austria’s imports come from Germany, China, with an import share of three percent, has a high share of high-risk imported products of 45 percent. The relatively high proportion of high-risk imported goods in the event of economic shocks is largely due to imports from Great Britain and other EU member states, as the study authors found out.

China Risk

China’s share of global trade is growing, but it is particularly pronounced for risky products. For Austria, the share of imports from China in this group rose from around five percent in 2000 to around 20 percent in 2018. For the EU27, this dynamic was even more pronounced with regard to Chinese imports.

Important regions from which Austria and the EU import, apart from the rest of the world with around 25 percent, the United States and the United Kingdom with around 10 to 15 percent and Switzerland with around 25 percent for Austria.

Recommendation: stress tests, build stocks

In the immediate fight against Corona, Austria and the EU have clearly benefited from the global value chains. “China helped us massively during the pandemic because we could not build up the necessary production capacities quickly enough in Europe,” states Stehrer.

However, in order to diversify the sources of supply more in the future, the study recommends establishing more resilient multilateral trading systems based on the World Trade Organization (WTO). Companies should inform governments about potential market concentrations and identify any bottlenecks along value chains and support the states. In addition, the study advocates stress tests and larger stocks for critical products.

Take Aways
  • High-tech industries most vulnerable
  • Compared to the EU average, Austria is particularly susceptible to delivery bottlenecks
  • 30 percent of EU imports and 35 percent of Austrian imports from third countries are made up of products that pose a considerable risk of availability in the event of trade turbulence.
  • Almost half of all EU imports come from China, which is the EU’s second most important trading partner.
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