Supply chain issues: explaining a matter that worries the world

Supply chain issues: explaining a matter that worries the world

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Stress was an ongoing situation in the supply chain before 2020. Trade tensions like the one between the U.S. and China, escalated under Donald Trump’s government with the introduction of tariffs and sanctions on Chinese companies, and the subsequent retaliation targeting U.S. agriculture exporters. Trying to get ahead and avoid the impact of the tariffs, companies around the globe rushed to stock their inventories; while trying to cope with supply and demand, global logistics felt the initial stress.

Then, at the beginning of 2020, COVID-19 news started flooding the news worldwide. During the first half of that year, we witnessed how demand for most goods sunk while global economy went on lockdown mode. With so many businesses stopping everywhere, ocean carriers didn’t have cargo nor reasons to sail, manufacturing capacity was cut, and workers everywhere were displaced or went back home to protect themselves.

Thanks to massive fiscal stimulus in countries like the US and Canada, locked-inside-their-homes consumers flooded online retailers with orders. Entering the summer of 2020, manufacturing had restarted, and international trade resumed.

Then, the panic started at the end of last year. While trying to restart the global manufacturing machine during a still ongoing pandemic, the predictability and precision required to move raw materials and finished products around the world were simply absent: there was a shipping containers shortage, shipping rates had increased, international ports and railroads were congested, and impact on the truck manufacturers was already a reality.

The now infamous shortage of chips started causing struggles not only for the trucks and auto makers but for many industries everywhere. As it turned out, while people purchased more gadgets for their increased time at home, semiconductors manufacturers were closing and facing their own challenges; auto makers had to lay off workers while having unfinished vehicles filling up their plants waiting for the chips.

The shipping costs increase is just as bad. According to the Drewry World Container Index, the rate to move a container from Rotterdam in the Netherlands to New York surged by 107% since last year, and the Shanghai-Rotterdam route was even worse, up 637% from last year.
However, the container price is only a part of the shipping cost. Add port fees, loading fees, customs and brokerage clearance, plus insurance and you will understand why containers went from $2,000 to $15,000 each; with many seaports, rail roads, and distribution centers working at fraction of their capacities, the horror picture is complete.

The initial problems in the supply chain were exacerbated by the pandemic, and the consequences of those issues are not merely shortages of components for certain industries but complications and challenges to processes everywhere. Time will tell how fast economies and trading players recover from this extended impact, but then again, an always demanding global market may not be as patient and understanding for too long.