The Global Supply Chain Crisis

As the proverb goes, a chain is only as strong as its weakest link. When it comes to the present status of the global supply chain, there are weak links everywhere. The container market, shipping routes, ports, air cargo, trucking lines, trains, and even warehouses are all experiencing massive disruptions. As a consequence, crucial industrial components are in limited supply, orders are backlogged, deliveries are delayed, and transportation and consumer prices have risen. If the problem is not handled quickly, the ramifications for the world economy might be disastrous.

What created this hole in the global supply chain? While it’s easy to pinpoint just the pandemic, there are some factors besides the COVID-19 that are at play too.?

The Impact of COVID-19

Demand for most commodities decreased during the first half of 2020 as economies throughout the globe went into lockdown. Sailings by ocean carriers were canceled, production capacity was reduced, and people were relocated all across the world.

However, starting in the summer of 2020, as a result of enormous fiscal stimulus, imports skyrocketed. Online shops were inundated with fresh orders from customers. Manufacturing and international trade have both resumed. The global economic machine was restarted. In fact, spending increased by 15% compared to pre-COVID-19 in 2019.?

Even then, by late 2020, serious gaps in the supply chain had begun to appear. Restarting the production machine after the lockdown was tough from a logistical standpoint. The complicated system that transports raw resources and finished goods throughout the world needs predictability and accuracy. And, at this point, both were gone.?

Importers reported delays in acquiring critical manufacturing components, while exporters had difficulties accessing containers and obtaining bookings on shipping carriers. As per the British Ports Authority, the world's biggest container ports will remain clogged up for six to nine months because of the supply chain crisis. Reopening economies are currently experiencing booming demand -- and supply has failed to keep pace. The chain had split. Moreover, the logistics sector is preparing for another surge in demand as the Christmas season approaches, which may further hinder the supply chain.

The Consequences of Putting All Eggs In One Basket?

When you hear the term "coronavirus", store shelves that are empty, regular news briefings on flattening the curve, or possibly cost-cutting initiatives at your company is generally what comes to mind.? What should come to mind if you are a trade expert is how coronavirus is impacting global supply chains.

The spread of the COVID-19 pandemic has highlighted the fragility of our supply chains, which are reliant on a single country's production facilities. China was seen – and continues to be viewed – as a nation having low-cost labor and established manufacturing facilities, which both contribute to cutting production costs and enhance profit margins for enterprises who create and source items there. Given the number of enterprises that import goods from China, COVID-19 has a significant impact on supply chains.

Corporations are also recognizing that relying on a single nation is risky, generating debate over "western companies' dependency on China."

Energy Crisis Will Lead To Less Power & Consequent Manufacturing Disruptions?

Ongoing shortage of energy across the world has affected countries such as the United Kingdom and China, among others. China was not the only Asian nation facing an energy crisis; India was also on the verge of a power outage. Coal contributes to around 70% of India's electrical generation. A prospective power outage would almost certainly have an immediate effect on India's fledgling economic recovery.

State-owned Coal India, which accounts for more than 80% of India's coal production, allegedly said last month that it will increase supply to utilities in order to alleviate the coal shortfall in power plants is eyeing one billion tonne of production by 2023-24. India has fairly recovered from the Energy crisis although it is still a challenge.

Meanwhile China is paying a high price for policies that restrained domestic and import output of coal, led to a shortage of the fuel that still largely powers the world’s second-largest economy. The good news for Beijing is that while the scarcity of coal will cause problems for energy-intensive industries, such as steel and aluminium, the situation is likely to be resolved relatively quickly. Looking at the domestic coal situation first, it’s clear that supply has become an issue in 2021. Australia used to be China’s second-biggest supplier of coal, with roughly 60 percent of its shipments being thermal coal, used for power generation and by industries such as cement, and about 40 percent coking coal, used to make steel.

Shortage In Tech Chips Is Causing Decline In Production?

Additional delays in the supply of critical inputs might potentially cause a drop in production. This is already occurring in various sectors, most notably the automotive industry, where a chip scarcity is causing a production slowdown.?

The worldwide shortage of semiconductors has hit sales of vehicles in India. In September, automotive sales (excluding commercial vehicles) fell by 20 per cent in India, declining to 1.71 million units, compared to 2.14 million units in the same month last year as per wholesale data from the Society of Indian Automotive Manufacturers (SIAM). India’s semiconductor demand stands at around $24 billion (Rs 1.8 lakh crore) and is expected to reach $100 billion (Rs 7.5 lakh crore) by 2025.

Toyota Motor, the world's biggest carmaker, intends to curtail global output by 40% due to a computer chip shortage. Ford intends to close a facility in Kansas City, Missouri, that produces the very successful F-150 pickup vehicle. Because of the scarcity, General Motors halted the majority of its truck manufacturing in North America last month. These reductions will result in lower real GDP estimates in the next quarters, impeding the economic recovery.

Conclusion

The COVID-19 pandemic has truly shown us the need to be flexible and adaptable. If we want to fix the supply chain and the global economy, these two attributes are much-needed. Hence, future supply chain models should spread their eggs in numerous baskets, i.e., establish suppliers in other nations.

One alternative is to replicate the technology industry's dependence on catastrophe and recovery plans, which we believe should be an integral element of the production, supply, and logistics networks of worldwide enterprises impacted by this pandemic lockdown.