The Global Supply Chain in the Midst of Unprecedented Public Crises
Closed factories, clogged ports, no truck drivers -- up and down the global supply chain there are problems, raising concerns that it could disrupt the global economic recovery.
(Photo by Brendan Smialowski / AFP) (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)
Global Supply Chain Hardly Sails with Favorable Winds
Covid-19 has been deeply disruptive for supply chains especially due to the intermittent outbreaks in different parts of the world. While the majority of the world has been moving faster to the pre-covid life, China’s strict covid policy has brought a significant impact on the supply network.
What’s more, the Russia-Ukraine war posed a striking threat to the world’s energy and food supply. Russia has the world’s largest proven gas reserves, the second-largest coal reserves, and the second-largest natural gas producer. Also, Ukraine and Russia account for around one-third of the world’s wheat production as well as about 75% of the sunflower oil supply. Due to the recent war, many countries have imposed sanctions on imports from Russia. However, cutting off oil, metal, and fertilizer imports from Russia posed a serious threat to the global, especially Europe’s energy supply. At the same time, developing countries in Africa cannot have a secure food supply from their major food importers.
The ripple effects of the zero covid clearing strategy in China and the Russia-Ukraine War bring more challenges to the world’s production and logistics capability.
Why The Supply Chain Is Affected
Labor Shortage: Lockdowns in China, particularly in Shanghai, caused a shortage of truck drivers. US port congestion as and when Chinese output increases, or is related to the upcoming port worker labor negotiation. In the UK, there is a new wave of labor strikes caused by the increasing living costs and the soaring inflation rate.
Falling real wages in the US and UK sparked labor demands for higher pay
Source: Bloomberg
Logistics Disruption: The continuous global logistic disruption since the beginning of the Covid-19 pandemic has still been impacting producers and customers since the primary producers, such as China, have suffered from continuous lockdowns and restrictions.
The Russia-Ukraine crisis worsens the existing congesting issue at Northern European ports. Airfreight transportation along the Asia-Europe lane where planes would usually travel through Russian airspace was disturbed. For rail freight, whether cargo can pass through Russia is another unforeseen complication that also adds costs to land transportation. In the New York area, the vessel delays were 20 days for waiting at anchor.
Production Delay: Manufacturers are not able to produce commodities on time due to the material shortage. For example, Due to the ongoing shortage of computer chips, Tesla delivered 310,000 vehicles in the first quart of 2022, which is only 68% of the same period in 2021.
Implications
The global supply chain can hardly sail with favorable winds. Unpredictable factors at regional and international levels affect the beginning-to-end process of product supply. Labor shortage, logistics disruption, and production delays affected the global supply chain in a negative way.
These challenges are not pandemic-specific. Various factors that come up from different corners of the world are not controllable. What the world learned from this experience is to emphasize the resilience-building of the global supply chain. For the private sector, automation in the supply chain will be key in filling the labor demands in the coming future. At the same time, seeking alternative sourcing will also be a feasible strategy to circumvent the dominant supply of specific materials. The public sector should standardize specific processes in each country in order to reduce the mismatch and increase productivity across the global supply network. Meanwhile, nation-states, international organizations, and NGOs should work together to reduce the impacts of geopolitical turmoils.
Only through reflecting, innovating, and collaborating, can we increase the resilience and preparedness of the global supply chain.
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References:
https://www.cia.gov/the-world-factbook/field/natural-gas-proved-reserves/country-comparison
https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2020-full-report.pdf
https://www.cia.gov/the-world-factbook/field/natural-gas-production/country-comparison/
https://mitsloan.mit.edu/ideas-made-to-matter/ripple-effects-russia-ukraine-war-test-global-economies
https://www.politico.eu/article/port-strikes-put-uk-supply-chains-under-fresh-pressure/
https://mitsloan.mit.edu/ideas-made-to-matter/reshoring-restructuring-and-future-supply-chains
https://nypost.com/2022/04/04/tesla-car-deliveries-surging-despite-industrywide-chip-shortage/