2021–2023 global supply chain crisis

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Global Container Freight Index, July 2019 - August 2022 Global Container Freight Index.webp
Global Container Freight Index, July 2019 – August 2022

In 2021, as a consequence of the COVID-19 pandemic and, later, the ongoing 2022 Russian invasion of Ukraine, global supply chains and shipments slowed, causing worldwide shortages and affecting consumer patterns. Causes of the economic slowdown included workers becoming sick with COVID-19 as well as mandates and restrictions affecting the availability of staff. In cargo shipping, goods remained at port due to staffing shortages.

Contents

The related global chip shortage has contributed to the supply chain crisis, specifically in the automobile and electronics sectors. During the Christmas and holiday season of 2021, an increase in spending in North America, combined with the spread of the Omicron variant of COVID-19, further exacerbated already tight supplies.

Long tail effects of the supply chain crises are contributing to ongoing food security issues related to the pandemic, including the 2022 food crises.

Causes

In early 2020, the COVID-19 pandemic initially slowed the global supply chain as manufacturers suspended work until safety precautions were enacted. Despite rosy forecasts from businesses for the next year, global trade continued at a reduced capacity and did not fully recover. New challenges in 2021, including the Delta variant and reduced access to the COVID-19 vaccine in developing countries, further exacerbated the recovery of global production even as the economies of wealthier, vaccinated regions, such as the United States and Europe, resumed their patterns of consumption. [1]

Vietnam, for example, is a major provider of American apparel. The country worked through the pandemic in 2020, with a strict lockdown procedure, but outbreaks in 2021 forced many manufacturers to close, especially as workers remained largely unvaccinated. To sustain production in 2021, the Vietnamese government required workers in higher-risk regions to live at their workplace. [1]

Economists pointed to lean manufacturing (also known as "just-in-time" manufacturing) as a major source of the supply chain disruption. The lean manufacturing method relies on well-tuned matching between the raw material input and finished good output of production facilities to minimize the amount of products stored in warehouses and thereby save money on overhead costs. It is notably weak to unexpected shifts in demand because it requires extremely accurate demand forecasting to achieve the savings and economies of scale that are its main benefits. When the COVID-19 pandemic began to shut down manufacturing facilities, it set off a chain reaction of disruption to the many companies which adopted lean principles in their production pipeline. Later, as demand skyrocketed for consumer goods and medical supplies like personal protective equipment (PPE), these same facilities were unable to keep up with demand, leading to massive backlogs. These disruptions cascaded into the global shipping industry where ports like the Port of Los Angeles, a major hub for imports from Asia, are unable to clear their shipyards in a timely fashion, further exacerbating the supply chain crisis. This has led to suggestions that stockpiles and diversification of suppliers should be more heavily focused. [2] [3] [4] [5] [6] [ better source needed ]

Shipping

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By mid-2021, major American ports became inundated with historic amounts of inbound cargo. Terminal staff lacked the bandwidth to process the cargo, leading to extended wait times. Container ships began to stall outside ports for days or weeks. This surge spread inland as rail and trucking services struggled under the increased load alongside a labor shortage. The United States trucking industry was already short on drivers before the pandemic, with high turnover and subpar compensation. Though enough shipping containers exist to handle global needs, given the amount held in transit or misplaced in wrong parts of the supply chain, containers entered short supply. Additionally, half of the sailor population comes from developing, under-vaccinated countries. [1]

Effects

Large American retailers chartered container ships in early preparation for the holiday season. [1] Container shipping companies were encouraged to develop and innovate technology-driven processes in shipping to achieve external influence free shipping. [7]

On October 17, 2021, United States Secretary of Transportation Pete Buttigieg predicted that the crisis would "certainly" extend into 2022. [8] In November, the Chinese Minister of Commerce advised citizens to stock food supplies for the winter. [9] [10]

According to a November 2021 report from Adobe Digital Insights, online shoppers were met with more than 2 billion out-of-stock messages in October 2021, which was double the rate reported in October 2020. In the United States the list of products that are in short supply included electronics, jewelry, clothing, pet supplies and home and garden items. [11]

As the world economy has struggled to regain its footing amidst the events of the past few years, Chinese exports have skyrocketed in the global market, rapidly increasing production to cover the quickly-rising global demand. In just one year, China's trade surplus with the US alone rose to $335.5 billion in 2021, up from $308.1 billion in 2020. [12] [13]

The supply chain crisis is a major contributing factor in the 2022 United States infant formula shortage, [14] the tampon shortage [15] and various drugs shortages. [16] [17]

In December of 2022, it was reported that global demand for commercial jet aircraft far exceeded supply, with Jefferies Group reporting a backlog of 12,720 aircraft. Boeing and Airbus, which produce more than 90% the world's commercial airliners, [18] are sold out for most of their most popular models until 2029. [19]

Future prospects

In December 2021, CEOs of major automotive manufacturers and electronics makers said they expected the shortage of semiconductor chips to continue through the first half of 2022. [20] Sales in India fell approximately 20 percent in 2021 due to the shortage of chips and the amount of light vehicles lost to shortages was half a million vehicles. [20]

In February 2022, Peter S. Goodman, writing in The New York Times , argued that returning to the pre-COVID-19-pandemic global supply chain was seen as "unlikely" in 2022. [21]

India, the United States, and Brazil are hardest hit in the supply chain with significant shortages of many different product categories. Interruptions in the supply chain have proved particularly difficult to overcome and control, which has put these countries at a disadvantage in global trade. Particularly affected by the loss are regions where there are challenges to democracy or human rights issues. China, like India, stood out as one of the losers in the battle for the supply chain. [22]

In addition to the impact of COVID-19 on supply chains around the world, the conflict between Russia and Ukraine has also had a major impact on the product supply crisis. It will affect the global economy and trade, with Russia and Ukraine accounting for more than 25% of world wheat trade and more than 60% of global sunflower oil and 30% of world barley exports. It will have an impact on the global supply chain as Russia is a significant source of 35 critical minerals vital to the United States' economic and national security interests, including 30% of the global supply of platinum-group elements (including palladium), 13% of titanium and 11% of nickel. [23]

A factor that will also leave its mark on the supply chain is the global inflation rate. In 2021 it was projected to reach an inflation rate of about 4% to 5% [24] percent but exceeded expectations and the global inflation rate ranges from 7% to 8% currently (June 2022). [25]

See also

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During 2022 and 2023 there were food crises in several regions as indicated by rising food prices. In 2022, the world experienced significant food price inflation along with major food shortages in several regions. Sub-Saharan Africa, Iran, Sri Lanka, Sudan and Iraq were most affected. Prices of wheat, maize, oil seeds, bread, pasta, flour, cooking oil, sugar, egg, chickpea and meat increased. Many factors have contributed to the ongoing world food crisis. These include supply chain disruptions due to the COVID-19 pandemic, the 2021–2023 global energy crisis, the Russian invasion of Ukraine, and floods and heatwaves during 2021. Droughts were also a factor; in early 2022, some areas of Spain and Portugal lost 60–80% of their crops due to widespread drought.

In 2022, several people claimed on social media that there was a deliberate campaign by the United States government to create an artificial famine.

The 2020s commodities boom refers to the rise of many commodity prices in the early 2020s following the COVID-19 pandemic. The COVID-19 recession initially made commodity prices drop, but lockdowns, supply chain bottlenecks, and dovish monetary policy limited supply and created excess demand causing a commodity super cycle rise.

References

  1. 1 2 3 4 Nguyen, Terry (September 2, 2021). "You can buy stuff online, but getting it is another story". Vox. Archived from the original on October 23, 2021. Retrieved October 17, 2021.
  2. ↑ Dayan, David; Mabud, Rakeen (January 31, 2022). "How We Broke the Supply Chain". The American Prospect. Retrieved March 2, 2022.
  3. ↑ "'Just-in-time' economy out of time as pandemic exposes fatal flaws". www.abc.net.au. May 1, 2020. Archived from the original on May 20, 2020. Retrieved May 21, 2020.
  4. ↑ "Companies should shift from 'just in time' to 'just in case'" . Financial Times. April 22, 2020. Archived from the original on May 4, 2020. Retrieved May 21, 2020.
  5. ↑ Evans, Dave. "Coronavirus Shows That Supply Chains are Outdated and Unfit For Modern Manufacturing". Forbes. Archived from the original on July 22, 2020. Retrieved May 21, 2020.
  6. ↑ Skidelky, Robert (April 22, 2020). "The coronavirus pandemic shows why the West must transform its economic logic". newstatesman. Archived from the original on June 2, 2021. Retrieved September 30, 2020.
  7. ↑ Notteboom, Theo; Pallis, Thanos; Rodrigue, Jean-Paul (June 2021). "Disruptions and resilience in global container shipping and ports: the COVID-19 pandemic versus the 2008–2009 financial crisis". Maritime Economics & Logistics. 23 (2): 179–210. doi:10.1057/s41278-020-00180-5. ISSN   1479-2931. PMC   7781181 .
  8. ↑ Devan Cole and Jason Hoffman (October 17, 2021). "Buttigieg says US supply chain issues will 'certainly' continue into 2022". CNN. Archived from the original on October 23, 2021. Retrieved October 24, 2021.
  9. ↑ "China is urging families to stock up on food as supply challenges multiply". CNN. November 2, 2021. Archived from the original on November 5, 2021.
  10. ↑ Stevenson, Alexandra (November 2, 2021). "China urges families to stock up on food for winter months". New York Times . Archived from the original on November 5, 2021.
  11. ↑ Layne, Rachel (November 10, 2021). "Electronics and jewelry top list of products in short supply, new data shows". CBS News . Archived from the original on November 18, 2021. Retrieved November 18, 2021.
  12. ↑ "China Posts Record Trade Surplus in October as Exports Surge". Bloomberg.com. November 7, 2021. Retrieved May 8, 2022.
  13. ↑ "Foreign Trade: Data".
  14. ↑ Thompson, Derek (May 12, 2022). "What's Behind America's Shocking Baby-Formula Shortage?". The Atlantic. Archived from the original on May 14, 2022. Retrieved May 14, 2022.
  15. ↑ Somasundaram, Praveena (June 16, 2022). "What you need to know about the tampon shortage". The Washington Post . Retrieved June 16, 2022.
  16. ↑ Zünd, Céline (February 22, 2023). "La rupture guette les pharmacies". Le Temps (in French): 7.
  17. ↑ Biedermann, Ferry (2023). "Seeking solutions to global drugs shortages". Lancet. 401 (10378): 720–721. doi:10.1016/S0140-6736(23)00437-3. PMID   36871561. S2CID   257286239.
  18. ↑ Sprague, Kate. "Why the Airbus-Boeing duopoly dominate 99% of the large plane market". CNBC.
  19. ↑ "The world just doesn't have enough planes as travel roars back | The Straits Times". The Stratis Times. December 28, 2022.
  20. 1 2 Mukherjee, Writankar; Thakkar, Ketan (December 13, 2021). "Chips & parts shortage, logistics disruptions: Car, electronics woes may continue till June". The Economic Times. Archived from the original on December 14, 2021. Retrieved December 14, 2021.
  21. ↑ Goodman, Peter S. (February 1, 2022). "A Normal Supply Chain? It's 'Unlikely' in 2022". The New York Times. ISSN   0362-4331 . Retrieved February 2, 2022.
  22. ↑ "Six key trends impacting global supply chains in 2022 - KPMG Global". KPMG. December 20, 2021. Retrieved June 8, 2022.
  23. ↑ "Supply chain implications of the Russia-Ukraine conflict". Deloitte Insights. Retrieved June 8, 2022.
  24. ↑ "Three Main Risks Facing Businesses in 2022: Omicron, Supply…". Euromonitor. February 16, 2022. Retrieved June 8, 2022.
  25. ↑ Cox, Jeff (May 11, 2022). "Inflation barreled ahead at 8.3% in April from a year ago, remaining near 40-year highs". CNBC. Retrieved June 8, 2022.

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