Navigating and Sustaining Supply Through Economic and Geopolitical Uncertainties

It’s no secret that the global COVID-19 crisis and subsequent geopolitical events such as the Russian invasion of Ukraine and the UK’s exit from the European Union have made the business of getting products from one country to another significantly more difficult than it was before 2020.

"We have become so used to global supply chains that we barely think about them,” said Professor of Analytics and Operations Management at Imperial College Business School, Professor Edward Anderson. "But almost every product we consume arrives on our doorstep courtesy of a global network of firms each feeding their components into the finished product. And it is when things go wrong that we sit up and take notice.”

These crises have shone a harsh light on the fragility of our just in time supply chains and many stakeholders in procurement, logistics, manufacturing, and other related businesses are now rethinking how they move shipments around the world.

Navigating the New Normal for Supply

The supply chain bottlenecks caused by these crises have alleviated in some areas, but there are still several ongoing concerns which continue to pressure the industry and cause significant delays. These delays can have knock on effects which can reverberate up and down the supply chain and disrupt related business – such as the global semiconductor shortage delaying the production of new cars and other technology products.

Some of the ongoing risk factors include:

• Possible rebound in US port congestion as and when Chinese output increases once again and compounded by ongoing labor disputes and shortages in these areas.
• Spill over impacts from the Russia/Ukraine conflict which has placed additional pressure on Northern European ports – compounding pressure which was already being experienced before war broke out.
• Air freight transportation limits – especially those along the Asia-Europe lane where cargo planes would have previously travelled through Russian airspace.
• Continuing COVID restrictions in China. This is especially true in Shanghai where reduced manufacturing, a shortage of haulage drivers, and many other factors are damaging an already fragile supply chain network.
• Rail freight disruptions. The overland routes between China and Europe are facing significant uncertainty over whether cargo can pass through Russia and the cost of insuring shipments as a result of moving through a warzone.
• Products which have to move from, to, or through the UK are facing sustained delays and disruption thanks to increased bureaucracy and customs charges thanks to the country leaving the European single market.

These factors and more are creating a perfect storm which needs to be effectively managed and navigated if supply chain businesses are going to continue to perform even their most basic function through 2023 and beyond.

Solutions?

While it’s hard to see positives in the ongoing cost of living crisis being felt in many countries, including but not limited to the US and the UK, one effect is likely to be a reduction in demand for many products which will help alleviate some of the pressure on supply chains and give businesses in the space a chance to breathe and take stock.

"On the capacity side, increased US trucking capacity and reduced working restrictions related to COVID-19 should help” said European Transport and Logistics Analyst at J.P. Morgan, Samuel Bland. "On the demand side, we expect the recovery in inventories seen in many importing countries to help. We also expect some shift in the mix of consumer spending back to discretionary services may help. More generally, increasing pressures on consumer budgets may also force a slowdown in import demand.”

Thinking on a more long-term basis, we would like to see more countries focusing on developing their domestic output and moving away from global just in time supply chains. We have relied on countries such as China for the cheap production of products for far too long and should take these crises as a sign things need to change.

Domestic manufacturing and supply will help create jobs and economic stability for people and the shortening of supply chains will reduce pressure on logistics networks whilst simultaneously reducing the climate impact of global freight transportation. However, the pressure to adopt these practices must come from within the industry itself and will require a significant shift in thinking from all involved.

Final Thoughts

These global crises aren’t going anywhere for the time being and the supply chain business needs to evolve if it is to successfully sustain operation and maintain the flow of goods for the duration. While the cost of living crisis may offer some respite from the situation, we need to make plans for the future now and not wait for the next situation to come down the pike and throw everything up in the air again.