Product Logjam Continues
Although many experts had thought we were out of the woods when it came to supply chain hold-ups, having survived over two years of the unprecedented pandemic, the war in Ukraine and Covid-19 have brought supply chain problems to the forefront yet again.
Many of the world’s raw materials come from Russia and the Ukraine, and in addition to that, the Covid-19 outbreak is right in the heart of the manufacturing area in China. This troubling duality will continue to haunt consumers and businesses alike as they struggle to afford both raw materials and products.
Covid Plus War Equals Trouble
On the heels of the pandemic, just as the world started thinking the supply chain troubles were easing, several new and profound events have developed that will again wreak havoc on the way people do business. With Vladimir Putin attacking Ukraine, the global supply chain is spinning again. Add to the Russian/Ukraine war, the problem of the Covid flare up in the manufacturing heartland of China, and the world is experiencing the perfect storm in the supply chain.
Russia and Ukraine are big exporters of barley, corn, wheat, and fertilizer, which is causing spikes on the price of these goods. Russia and Ukraine are responsible for 30 percent of the world’s wheat production, which will have a definite effect on the way we use these products. Beyond the problem with food production, these countries also supply raw materials for computer chips. Ukraine supplies around 50% of the world’s neon gas, which is used to print circuity onto the chips. They also provide palladium, which helps in later stages of production. These deficits will affect trade around the world.
The ripples from overseas will continue to have a profound effect on the availability of products as well as their price in the United States and around the world. “What people expected to be a recovery year is going to be another year of crazy hiccups in supply chains,” said Johannes Schlingmeier, chief executive of xChange, a shipping container leasing company in Hamburg.
Only a few weeks in, the war in Ukraine has changed the way that people are doing business. “Already, the war has caused cargo airlines to cancel or divert flights over the region, Russian and Ukrainian factories to close up shop, and energy prices around the world to soar. It puts at risk global supplies of essential components for a number of goods, including platinum, aluminum, sunflower oil, and steel—components that will further exacerbate global shortages of vehicles and semiconductor computer chips,” said Nada Sanders, distinguished professor of supply-chain management at Northeastern.
The problem is at a peak in busy seaports. “If you look at the L.A. port, you don’t really see relief in sight yet. Solving these supply chain bottlenecks will still take more time,” said Michael Wax, chief executive of Forto, a freight forwarder based in Berlin.
War is not the only thing making waves. “In China, the government imposed tight coronavirus restrictions on more than 50 million people in key cities, including Shenzhen, Shanghai and Changchun, starting on March 13. Companies in the affected areas account for three-quarters of China’s exports, according to Capital Economics.” Additionally, over 50 Chinese electronics factories were shuttered this week because of the high rate of virus transmission. With as many products on the shelves that are made in China, the impact will be broad.
Where to go from Here?
Manufacturing companies as well as consumers are facing a difficult journey in the coming months. One way many companies are trying to combat supply chain issues is by moving the factories that make parts closer to the manufacturer’s needs. The Harvard Business Review explained that Schneider Electric is set to build three new manufacturing facilities in North America, one of which will be in El Paso, Texas, in order to avoid the congestion and cost of overseas production. Officials are planning 13 new electric vehicle battery factories in the United States within the next five years. Other industries such as solar, biotech, and semiconductor industries are moving forward in the same way.
Because of the extreme dependence on China, companies around the globe are making a concerted effort to build relationships with a larger number of suppliers around the globe. Hong Kong-based supply chain management operation Li & Fung is the flagship of using this strategy, which allows them to quickly recover if there is trouble in one part of the world.
Life as we knew it has likely changed forever with the pandemic and global war. It stands to reason that “business as usual” will no longer work for a world hungry for oil, raw materials, and other integral parts for manufacturing. Businesses will need to forge new relationships and create new channels to find what they need in this global market.