Global Supply Chain Crisis Could Last Another Two Years, Experts Warn | Supply chain crisis

In Great Britain it’s alcohol, in Canada it’s maple syrup, while in Australia it’s a crucial additive for diesel trucks, and in New Zealand it’s brown sugar. These are just a few of the many shortages affecting consumers and businesses around the world, as industry experts warn that the supply chain crisis caused by the coronavirus pandemic could last for many more months and even up to two years.

While there are signs that some bottlenecks are easing, the appearance of the Omicron Covid variant could lead to further shutdowns, sending another disruptive spasm into the global system.

The most serious appears to be a Covid outbreak this week in the Chinese manufacturing hub of Zhejiang, home to the world’s largest cargo port, Ningbo-Zhoushan. Tens of thousands of people are in quarantine under China’s strict zero Covid policy and some local authorities have urged workers not to return home “unnecessarily” for the Lunar New Year festival in February. “Further disruption to the supply chain is an important possibility,” said economic analysts at Capital Economics in a note.

Industry experts and economists believe problems could persist as the finely tuned global trade network, already weakened by months of shipping backlogs, labor shortages and geopolitical tensions, remains “decomposed”.

Maersk, one of the Big Three, said the worst delays were still on the west coast of the United States, where ships were waiting four weeks to unload due to a lack of workers ashore.

Maersk says the worst delivery delays are on the west coast of the United States. Photograph: Barcroft Media / Getty Images

This is creating a chaotic “ripple effect” around the world with ships stranded under tight deadlines and an overabundance of containers in some ports in the US and Europe, but not enough in ports across Asia.

“With winter, the year-end holidays in North America and Europe, the Chinese New Year in Asia, the already stretched supply chain will be further stretched as workers, truckers and terminals are on vacation, ”a Maersk spokesperson said.

“Normally we can absorb these seasonal impacts pretty quickly, but when they’re already stretched, it just becomes a multiplier. “

“We don’t see any major improvements as long as we have a line of sight, which is in 2022… It is very likely that this will continue thereafter and for North America for even longer.”

At Felixstowe, the UK’s largest container port, the quay remains cluttered with containers waiting to be emptied, meaning empty containers returning to trucks from inland warehouses must be diverted to other ports .

Robert Keen, of the British International Freight Association, said driver shortages were felt all over the world, with port infrastructure not keeping pace with container ships. Covid was “an ongoing problem,” he said.

Flavio Macau, associate professor specializing in supply chains at Edith Cowan University in Western Australia, said adjustment could take years and the global economy is still suffering from some kind of “hypertension” so that she went from one disturbance to another.

“Lockdowns are hopefully a thing of the past outside of China, but all kinds of restrictions are still in place on the movement of people, including workers with in-demand skills.

“My take is that supply chains always have high blood pressure, constantly showing arrhythmia. We will have to wait until mid-2024 to return to “normal”.

In addition to possible shortages of Christmas drinks and sugar for festive treats, economies like the UK and US are facing rising inflation for a range of products from energy to apples, as A torrent of demand puts pressure on insufficient supply.

Maritime transport accounts for the movement of at least 90% of the world’s goods and the cost of transporting objects by sea has exploded in the past year. For example, the Drewry World Container Index measuring the cost of moving a 40-foot container is 170% higher than it was a year ago. The price on some particularly popular routes such as Shanghai to Rotterdam has increased by almost 200%; in the case of the Dutch port to New York, the cost increased by 212%.

The prices of consumer staples are skyrocketing due to higher shipping costs and increased demand from consumers stuck at home for months and unable to spend money on goodies such as vacations and parties. Coffee prices have doubled in the past year, according to current data, as has the price of oats. Lumber, cotton, wheat and palm oil all increased by more than 30%.

Unsurprisingly, inflation has peaked for decades in Western economies such as the United States, Britain and Germany, ending ultra-accommodative monetary policies pursued by central banks since 2008.

Roy Cummins, who worked in logistics for 30 years and until recently was managing director of the Port of Brisbane in Australia, said there was some feeling things were improving, but felt that the constraints on the international maritime network were unlikely to be alleviated for the next two years.

His point is illustrated by the bottleneck of giant containers that has accumulated off the west coast of the United States. With so many ships unable to dock and unload, more than 80% of the 434,000 20-foot containers exported from the Port of Los Angeles in September came out empty. Shipping companies can make up to eight times as much money transporting goods from China to the United States, so it made sense to bring the containers back to Asia rather than waiting for them to be full.

This addressed huge imbalances throughout the system, he said: “Supply chains have been disrupted. Shipping capacity was quickly depleted at the start of the pandemic as everyone expected demand to drop sharply but in fact there was an increase because people wanted to buy things. Then the supply was hit hard by ports, warehouses and trucking companies short of workers.

“But you can’t flip a switch and restore a new ability. The new ships are not ready before 2023. Maritime supply should normalize within a year, but is the economy normalizing? “

Before the pandemic struck, the shipping industry had reduced the costs of transporting goods and perfected the famous “just in time” system by which goods and parts were moved seamlessly around the world. and delivered exactly when and where they were needed. This has significantly reduced the costs of the business, for example by reducing or completely eliminating the need for on-site storage.

If uncertainty persists and consumers continue to splurge online shopping, Cummins says, “you’ll see ‘just in time’ turn into ‘just in case’ as businesses build up inventory to guard against it. disturbances ”.

Dennis Unkovic, U.S. business lawyer, commerce expert and author of Transforming the Global Supply Chain, says the Covid crisis has shown the system to depend on a just-in-time model designed to work flawlessly, “but it didn’t is not what happened “.

The deterioration of relations between the United States and China which has led to trade tariffs and loss of confidence has also had a bigger impact than previously thought, he says, upsetting the mechanisms. of world trade that have been taken for granted for many years. Cyber ​​attacks and robotics have also prompted companies to review their supply chains and source materials closer to home.

“For anyone who expects the post-pandemic world to return to ‘normal’, forget it. What was considered normal before the pandemic is not coming back.

“Businesses need to make the supply chain a priority,” he says. “If it breaks down, we can’t say we didn’t see it coming.”

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