World’s Largest Shipping Port Getting Back In Action

Shanghai is coming out of a strict Covid-19 lockdown that has immobilized the city since March. Even though Shanghai’s port, which tackles one-fifth of China’s shipping volumes, has been functional throughout, it has been operating at a lowered capacity. Several shipments have been rerouted to other ports like Ningbo-Zhousan, cancelled, or postponed.

With the city supposed to reopen on 1 June, the port will be in overdrive with manufacturers try fulfilling backlogs, with serious knock-on effects all over the world. It is an instance of how global supply chains in 2022 have been destabilized in ways that were not apparent at the beginning of the year. In January, we preempted ongoing disruption as the world economy continued to recover from the pandemic. Things, in fact, have been worse.

Besides Shanghai, many other Chinese ports like Shenzhen have been affected by lockdowns. And then there is Ukraine. The war has resulted in hiked prices for goods and services even higher than the predicted rises for 2022, adding to logistical challenges.

Per the New York Federal Reserve’s global supply chain pressure index, which considers issues like delivery times, freight rates, backlogs, and supply chains are under unforeseen pressure – and getting worse with time.

Ukraine may not have been on many nations’ radar as an important economic partner, however, it was perceived to be a bottleneck for supply chains before the war was underway. This was owing to poor infrastructure of port and the significant accumulation of maize and wheat supplies that is moving through. The war was, hence, going to have a severe impact on international supplies.

Even if there are no further lockdowns in China and the Ukraine crisis does not intensify, the global supply chain is going to be under heavy pressure for the remaining year. Per a recent UK survey, almost three-quarters of firms consider 2023 to be tough too.

For smaller businesses in particular, a failure to adapt to the evolving environment may threaten survival. At a time when fears of a recession are in the wind, this could make long-term economic recovery more difficult.

But for the medium term, there are reasons to be optimistic. For decades, most supply chains had been emphasizing cost cutting. Manufacturing was outsourced to specialist suppliers, especially in countries with relatively cheaper labor costs. Firms maintained minimal inventories and had short-term contracts to be flexible.

The weaknesses in that the “just-in-time” systems were exposed by Covid-19 and the China/US trade war, and several firms now are placing more emphasis on being resilient and also having a clearer view of all the suppliers in the chain. In this “just-in-case” model, some inefficiency is considered a benefit instead of a waste of money.

Cost is still a crucial consideration, but product availability and quality are now seen to be more important. Companies are diversifying their supplier bases to not be heavily dependent on China (with the additional benefit of lowering their carbon footprints). Well-known US players like Boeing, Ford, and Walmart are among those turning to locations closer to home markets, while numerous UK and mainland European majors have started following suit.

Such shifts should make supply chains more robust, even if this leads to increased prices. At the same time, efforts to preempt future crises are seen. The EU and the US have been planning on developing warning systems to early preempt future global disruptions to the semiconductor supply chains that have affected everything from production to cars and even consoles of video game. More broadly, a recent UK report called on the government to establish a resilience task force and collaborate with industry to enhance visibility within the supply chains.

That approach would be worth implementing. Supply chains are going through the most turbulent phase in several years now, but learning lessons and adapting indicate that the worst can be avoided in the future.

Reference: theconversation.com