Pressures on the global supply chain are easing, but the crisis is not over

New outbreaks in China have seen an entire city of nearly 13 million people forced into extreme lockdown as operations at the world’s third largest container port, Ningbo, were disrupted (again) by a COVID outbreak in one of its suburbs which is impacting the trucking in and out of the port.

China operates seven of the world’s 10 largest container ports, so its uncompromising approach to the pandemic has regularly disrupted international trade, as have the effects of the pandemic and, more recently, an energy crisis, on its countries. factories.

People line up for COVID-19 tests at a testing station in Nanjing, east China’s Jiangsu Province.Credit:PA

Likewise, labor shortages due to COVID infections and risk aversion have impacted U.S. ports and land transportation capacity, resulting in long queues at ports and long lead times for freighters and delayed and volatile flows of goods to US businesses and consumers.

There were also spikes in shipping and container costs, which climbed to 10 times pre-pandemic levels before dropping a bit late last year, which in turn is passed on to businesses and their end consumers. Maritime transport accounts for around 90 percent of cross-border freight transport.

Shifts in global supply chains have coincided with a huge surge in consumer demand, fueled in part by largesse from governments and central banks, but also by the impact of lockdowns on where consumers could spend their money. savings – lockdowns hit travel, entertainment and dining in particular.

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The disrupted supply and dramatically increased and skewed demand (compared to pre-pandemic spending patterns) helped spur global inflation rates to levels not seen in a decade, forcing now to turn around in unprecedented ultra-flexible monetary and fiscal policies. large economies deployed in response to the pandemic.

While some of the supply chain pressures and costs captured by the GSCPI may have declined from their 2021 peaks (the cost of shipping containers from China to the West Coast of the United States is 30% below its peak), it is evident that the continuing outbreaks and mutations of COVID and the responses of businesses and consumers to the pandemic mean that there will be no return to the pre-pandemic norm, even if the pandemic is finally brought under control.

Globalization, the emergence of China as a global low-cost manufacturing base, and the smooth flow of goods and services around the world before 2020 have made it easy for companies to pursue ‘just-in-the-money’ production strategies. time ”at low stocks launched by the Japanese in the 1970s.

After the experience of the past two years – both with the pandemic and growing tensions between China and the West – corporate strategies will shift from this just-in-time manufacturing approach to a “just in case” approach.

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They will keep more inventory and source or manufacture closer to home, either by absorbing the increased costs or, for those with pricing power, by passing them on to consumers.

It’s likely that businesses – the transport companies and the factories and customs they connect – will already react to their experiences, which is probably why the GSCPI started to decline towards the end of last year.

The index is unlikely to fall back from its peak of four standard deviations from its long-term average to pre-pandemic standards, however.

Some supply chain experts believe that a new functional normal for global supply chains will be achieved within the next two years. Whenever this new normal is reached, and however it looks, it seems certain that it will look and function differently, and cost more, than the one that the pandemic has displaced.

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