Inflation Sparks Strikes in Europe, Disrupting Supply Chains

Persistently high inflation across Europe has sparked waves of strikes this summer and the industrial actions could put extra pressure on the supply chain that extreme weather has already disrupted.

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"There is some concern about strikes at key transport infrastructure impacting global supply chains," said Sarah Schiffling, senior lecturer in supply chain management at Liverpool John Moores University.

Over 1,900 members of Unite union started an eight-day strike on Sunday at Felixstowe, the country's largest and busiest container port, over pay dispute. The strike could disrupt more than US$800 million worth of trade, with clothing and electronic components among the commodities impacted, according to the risk modeling company Russell Group.

"In the UK, a strike at Felixstowe stirs memories of the long queues of ships outside ports through parts of the COVID-19 pandemic. It also comes at a crucial time as many supply chains are now gearing up for the important Christmas sales period," Schiffling said.

This summer, when consumer prices rocketed, strikes were staged in countries like Germany as well. Thousands of workers at the country's North Sea ports organized a walkout in mid-July over pay, which was widely considered to have an impact on the supply chain.

"Most strikes address longer-running concerns," Schiffling explained, noting that low pay, for example for barristers in the UK who plan strike action from early September, has been an issue for years. While many strikes were delayed or interrupted because of the COVID-19 pandemic, they are now resurfacing.

"Where low pay was a concern, inflation makes this more urgent. Given the shortage of workers, many unions also have a strong bargaining position now for better working conditions for their members," Schiffling said.

Since the beginning of this year, the inflation rate in the eurozone has continued to rise. According to Eurostat, the statistical office of the European Union (EU), annual inflation for July in the eurozone was up by 8.9 percent, hitting a new record.

The UK's Consumer Prices Index rose by 10.1 percent in the 12 months to July, up from 9.4 percent in June, as rising food prices made the largest upward contribution to the change between June and July. Sanctions against Russia are part of what is pushing up inflation because they have resulted in higher energy prices on global markets.

"Many European countries used to get a lot of their energy from Russia. Countries like Germany have failed to diversify their energy portfolio earlier and are now scrambling to find alternative solutions, while also facing the consequences of the pandemic," Schiffling said.

For most European countries, Russia was not a major trade partner outside of the energy sector. The pandemic-related rise in prices was another reason for the current rate of inflation. Prices for many goods have risen in response to the pandemic and its after-effects as global supply chains have struggled, either because production was impacted, for example by lockdowns of production facilities, or because transport links were disrupted, for example because of long delays in ports.

The tweet reads, "Fighting inflation: this recent infographic shows that France is among the best students in Europe." The data corresponds to the annual inflation rates as of July 2022.

A third major factor for inflation is the labor shortages across much of Europe and the United States, Schiffling pointed out. "Fewer people than before the pandemic are seeking work and competition for workers is high, so many companies are offering higher wages to attract workers, thus driving up their costs. So, prices for services, not just goods, are also on the rise."

Speaking of the supply chain, Schiffling said the unfavorable climate is currently a bigger concern on top of the strikes. A drought across much of Europe is affecting agricultural production at a time when exports from key agricultural producer Ukraine are still severely restricted.

"Low water levels also impact crucial energy infrastructure, such as nuclear power stations and hydropower. If there have to be power cuts for industry, production is severely impacted," Schiffling added.

Transport is also affected by the drought with key rivers like the Rhine in Germany having extremely low water levels, and ships can carry less freight or cannot sail at all, which means freight has to be forwarded by road or rail, which carry much lower volumes and are less climate friendly, she said.

"This also puts additional pressure on transport infrastructure. For example, the German railway company has warned that passenger trains may have to wait to let coal trains pass," Schiffling said.