Changes in the Global Supply Chain and the Implications for Island States like Jamaica

Since the onset of COVID-19 you may have noticed that it has become difficult to get some of your favourite brands or the cost for these items have skyrocketed. If you are an avid online shopper, you would have noticed especially in the earlier parts of the pandemic your favourite website giving alerts on delays in the shipping of items due to COVID-19.?

The Novel Corona Virus more popularly known COVID-19 has laid bare many deficiencies in the global supply chain. However, is it to be solely blamed for the deficiencies we are now seeing? Yes and no. Before assessing the impact of COVID-19 we should first define exactly what supply chain is and why it is important. According to Supply Chain Digital Magazine “it is the entire process of making and selling commercial goods, including every stage from the supply of materials and the manufacture of the goods through to their distribution and sale.” Good supply chain management is therefore important for any company providing a product to consumers as it firstly allows for that timely delivery at lower costs and with a more efficient production cycle.

Global supply chains are very complex and interconnected. A drought or flooding in Russia can significantly affect you getting your favourite beer at your local bar, as Russia is the world’s largest producer of barley, a key ingredient in beer. It is therefore very plausible that a global pandemic could provide a perfect storm for disruptions in global supply chains, particularly if these supply chains were already fraught with problems. COVID-19 has led to an increase in the demand for goods. As many persons found themselves in lockdown spending on goods such as food, appliances, furniture among other things increased. According to Gene Seroka Executive Director, Port of Los Angeles, “the American consumer’s buying strength is so strong and epic that we can’t absorb all this cargo into the domestic supply chain” BBC New. Nike is now unlikely to be able to satisfy the market demand for the Christmas seasons and some big wholesalers are limiting the amount of goods such as paper towels that one consumer can buy.

?While demand for consumer goods rose, supply for raw material and finished goods fluctuated in some cases and tanked in others.?Like households, factories and ports experienced shutdowns, flights have been restricted and container shippers also faced a plethora of challenges due to COVID-19. Factories, particularly those in Asia and Europe, experienced difficulties in managing and containing COVID-19 outbreaks. This led to many bottles neck and delays in production. The knock-off effect of this upstream disruption is that downstream supplies were also disrupted. For example, if I supply pineapples to a fruit canning plant and they are unable to absorb all my pineapples I may find alternative markets or cut back on the number of pineapples produced. In fact, I may have a disruption not only with my usual market but also on my farm where workers are unable to work their usual hours due to COVID-19 outbreaks or national lockdowns. In cases where factories had minimal disruptions, they may have challenges getting their goods to their markets as ports are also impacted by outbreaks and lockdowns.

It has been over 18 months since COVID-19 hit, so clearly, we must be stabilizing the supply of raw material and understanding the new ways of working to reduce lockdowns and outbreaks, right? Moreover, we now have several vaccines available to reduce outbreaks and hospitalizations. In March 2021 an Ever Given 20,000 TEU container ship blocked the Suez Canal for 6 days. The Suez Canal is an artificial sea-level waterway located in Egypt. It connects the Mediterranean Sea to the Red Sea through the Isthmus of Suez dividing Africa and Asia – an integral part of the “Silk Road” that connects Europe and Asia. About 50 ships daily or over 20,000 ships annually go through the Suez Canal (suezcanal.gov.org). The Ever-Given incident led to the delay of hundreds of ships. It’s also important to note that it led to containers ending up in places they were not supposed to be.

Coupled with surging demand for goods, the cost of shipping has skyrocketed over the last few months in some cases over 200% more than the costs in 2019. COVID-19, the increase in the demand for goods, the increases in shipping costs compounded by labour shortages in the UK, Europe and the United States have all disrupted the global supply chain. Most importantly, the complexity of the global supply chain has also contributed to its own challenges. Globalization ushered in a “just in time” system of production which is one of the ways supply chain costs are managed. By delivering goods to firms only when needed, storage and other costs are minimized or eliminated. Issues arise when the goods do not arrive just in time or cost increases so rapid making it either difficult or impossible to purchase. Globalization also facilitates the sourcing of goods thousands of miles from where the finished good is produced or assembled. It has also facilitated the consolidation of the production of some materials/goods that are used in several different industries.?Semiconductor chips used in cars, computers and several other electrical products are perfect examples. A shortage of this chip means a shortage in several finished goods, not just cars.

In the Caribbean getting goods can be very difficult, since ‘just in time’ does not always work well in our small island context as the volumes of goods ordered by our firms are usually small and we are not a major trans-shipment point when compared to other locations. In fact, some of our firms order goods through third parties. The challenges in the global supply chain make firms in countries like Jamaica very sensitive to challenges and rising costs which are pegged to the US dollar. A delay or mishap in the Suez Canal means significant delays in the arrival of goods in Jamaica or Trinidad. In Jamaica lead times have doubled sometimes tripled in the last few months, driving a shortage in goods and increased costs. This was echoed in July of this year by then president of the Jamaica Manufacturers and Exporters Association Richard Pandohie who stated “What Jamaica is facing now is an unprecedented situation in my lifetime where everything is going up. Anyone who tell you that they haven’t raised prices or hasn’t touched price, they’d have to be in the .001 per cent of businesses. Everything has been impacted.” (radiojamaicaonline.com)

Firms in countries like Jamaica will need to get creative in their management of their supply chains. They will need to become more targeted in their planning, allow for more storage and ensure continued and direct communication with their suppliers so they can be more agile in responding to shocks and the rapid changes. Businesses should also consider creating synergies and partnerships with each other and try to jointly source common commodities such as refined sugar. Firms also need to explore manufacturing some of the goods they usually import. Shared warehousing with state-of-the-art shelving and thermal control rooms must become industry practice to ensure smaller companies can afford the cost of storage, reduce waste and manage their inventories in more efficient ways.