Posted by Tasnim Ahmed
May 12, 2021 | 5-minute read (890 words)
A smoothly operating supply chain is the invisible hand that brings whatever we desire at our beck and call. But the pandemic has upended the supply chain for the past year or so. In today’s interconnected global economy, hindrances in this critical sector are having a ripple effect on businesses across the world. When one component fails to arrive, a whole supply chain augmenting that particular good grinds to a halt.
The fallout from repeated problems in the supply chain continues to be felt across the world, especially in developed countries with major manufacturing bases. The U.S., Europe and Asia are reeling from supply-chain disruptions even long after lockdowns have been lifted and the vaccine has been introduced in most regions. Supply-chain experts now say we should prepare for the disruption to continue through summer.
Can’t it go on like before?
The answer to that question is unclear. At the onset of the pandemic, many countries implemented lockdowns but for different intervals and at varying times. While most Asian countries, especially China, and a few European countries such as Italy ordered early lockdowns, many other European and North American countries opted not to. When COVID-19 hit countries across the world, most of the manufacturing processes, businesses and supply abruptly dried up amid these lockdowns. A backlog of orders ensued, and in some cases, widespread order cancellations followed suit.
In today’s geopolitical scenario, much of the world’s manufacturing is based out of Asia. North American and European countries faced a mammoth supply glitch as products became inaccessible amid the pandemic. When China and other Asian countries reopened for business, then it was the turn of North American and European countries to be subjected to lockdowns, which then created a backlog among those businesses. In all these scenarios, the most common underlying problem was a disrupted transportation sector, suddenly handicapped from moving goods globally.
The supply and logistics industry was already under immense pressure to maintain operations among countries that function with different rules and regulations. Clearing backlogs, preventing overload and getting in and out of ports while simultaneously navigating the new norms for COVID-19 has added a thick layer of complexity and will continue to do for some time. As the industrial nations of the world function like a cog in a machine, with the logistics and supply chains assumed to be the grease to keep it all running smoothly, businesses are feeling the pinch.
It is true that there are countless ships transporting containers from many ports around the world right now. But that doesn’t mean the ships are where they are needed. And the numbers of global ports, ships and containers isn’t going to rise exponentially in the near future, contributing to the supply-chain slowdown. Meanwhile, other essential components of the global economy are facing shortages.
The effect is worse for small businesses
Currently there is a worldwide shortage of microchips, plastic and lumber, in particular, exacerbated by supply-chain bottlenecks. Consider that microchips are essential to build things the modern economy centers around, like cars, trucks and ship, to name a few. Plastic also is needed to mold or create a whole litany of goods we rely on, right along with the supply chain’s logistics needed to transport them to the right place.
Meanwhile, according to CNN, global port backups are at their worst ever and delivery times are the longest in 20 years of data collection. Container ships are languishing at some ports due to insufficient berths, meaning goods cannot be placed fast enough to meet the surging demand of the recovering world economy.
In the March 2021 Wall Street Journal and Vistage Small Business CEO Survey, 44% of respondents reported that they had already experienced shortages in their supply chains. And an April survey conducted by the U.S. Census Bureau among small businesses identified supply-chain disruptions in wholesale trade and construction and manufacturing, among others. These disruptions represent a bigger burden for small businesses because they have less leverage to counter price hikes and less flexibility to pass their higher costs on to consumers.
Is there an end in sight?
Carnegie Mellon University Professor of Operations Management Sridhar Tayur, who headed software firm SmartOps before its 2013 acquisition by SAP, told Inc. magazine that supply-chain disruptions should dissipate by the end of summer. Other experts agree the system will adjust itself and that all it requires is time, although they differ on how long. But the disruptions reinforce how vulnerable supply chains remain to global forces.
At the same time, China has continued to forge ahead with its Belt and Road Initiative, one of the world’s largest infrastructure projects, but it can still only handle a trickle of the business generated from the ports and the high seas. Added to the mix was the recently concluded Evergreen incident in the Suez Canal, wherein a massive container ship blocked ship traffic for days. This may seem like a small incident to some, but in an interconnected world today, is any incident isolated? So, until the time the supply logistics work themselves out, and capacity building is undertaken at ports and ships alike, all you can do is wait is for that air conditioner unit you ordered off Amazon the other day.