5 challenges facing global supply chains
1. The rising cost of living
Skyrocketing inflation has seen households hit hard by rising food costs. Expectations
that consumers will have to severely cut back on expenditure this winter has plunged
demand for goods and services into uncertainty.This makes it difficult for supply chain
planners to accurately estimate in advance the amounts and types of goods likely to be
needed by consumers. The pandemic has already changed this picture considerably, but
predicting demand has become even more difficult in 2022.
Stock for the Christmas shopping period is made and shipped months in advance so
current uncertainty is likely to feed into incorrect forecasts. This could lead to
disappointment this Christmas if certain products are difficult to find or more expensive to
buy as tighter supply pushes up prices.
2. Labour unrest
The rise in the cost of living has also seen workers demand wage increases to
counteract the impact of inflation on their pay packets.Industrial action ups the pressure on
supply chains. Striking truckers in South Korea have already disrupted computer supply
chains this summer, while UK railway strikes have affected deliveries of construction
materials.
Dock workers have been on strike in Germany and the UK, while freight hubs in Ireland
are expected to clog up due to strikes at the Port of Liverpool across the Irish Sea. Some UK
unions have floated the idea of coordinated strike action in coming months, which could
cause further disruption to supply chains.In addition, truck driver shortages seen in
2021 have continued this year. In fact, labour shortages have spread to other sectors that
support supply chains, including ports and warehouses.
3. Energy shortages
Inflation has not only been a problem for food prices, but also energy costs. Rising gas
prices and reduced supply from Russia are forcing European companies to look
to alternative energy sources like coal, while research from Germany’s Chambers of Industry
and Commerce shows 16% of its companies expect to either scale back production or
partially discontinue business operations.Germany is Europe’s largest economy and it is
heavily dependent on exports. If it is expecting a recession, the impact on manufacturing
supply chains globally could be significant.
But even countries that are less reliant on Russian gas are experiencing energy price
rises with serious consequences for businesses. Pakistan has shortened its work week to
lower energy demand. In Norway, fertiliser production has been slashed, affecting food
supply chains.US retailers are cutting their sales forecasts and UK car makers are worried
about their output. In southwestern China, car assembly plants and electronics factories
have already started to close due to a lack of power. All of these disruptions will cause
ripples along global supply chains.
4. Geopolitical uncertainty
The invasion of Ukraine is the root cause for much of the energy and food price inflation
countries are experiencing at the moment. It has thrown supply chains into disarray this
year, fuelling a global food crisis.A fertiliser shortage is also limiting agricultural output in
many countries. While some grain ships have now left Ukraine, unlocking important supplies
that will address famine in countries like Yemen, this will not solve the global food supply
crisis. In other parts of the world, tensions between China and the US that were already
playing out pre-pandemic have continued. Recent Chinese military exercises in the Taiwan
Strait following a visit to Taiwan by US House Speaker Nancy Pelosi disrupted one of the
world’s busiest shipping zones in August.
Any further escalation of tensions could disrupt, for example, supply chains that deliver
semi-conductors used in computers to manufacturers around the world.
5. Extreme weather
Climate change is a much more long-running problem for supply chains. This year,
drought has caused water levels to drop around the world, impacting major shipping supply
routes.
Low water means ships can only carry a fraction of their usual freight to minimise the
risk of running aground. While freight can be diverted to other types of transport, a single
ship might require more than 500 trucks to move its cargo.In recent months, parts of
China’s Yangtze river, which is responsible for 45% of the country’s economic output, have
been closed to ships because water levels are more than 50% below normal. Two thirds of
Europe is also experiencing drought conditions, which are only expected to worsen.
The images below show the impact of drought on the Rhine river, a major trade artery
in central Europe that connects German manufacturers to the sea.In other parts of the
world, tensions between China and the US that were already playing out pre-pandemic
have continued. Recent Chinese military exercises in the Taiwan Strait following a visit to
Taiwan by US House Speaker Nancy Pelosi disrupted one of the world’s busiest shipping
zones in August.Any further escalation of tensions could disrupt, for example, supply chains
that deliver semi-conductors used in computers to manufacturers around the world.
5. Extreme weather
Climate change is a much more long-running problem for supply chains. This year,
drought has caused water levels to drop around the world, impacting major shipping supply
routes.Low water means ships can only carry a fraction of their usual freight to minimise the
risk of running aground. While freight can be diverted to other types of transport, a single
ship might require more than 500 trucks to move its cargo.
In recent months, parts of China’s Yangtze river, which is responsible for 45% of the
country’s economic output, have been closed to ships because water levels are more than
50% below normal. Two thirds of Europe is also experiencing drought conditions, which are
only expected to worsen.The images below show the impact of drought on the Rhine river, a
major trade artery in central Europe that connects German manufacturers to the sea.
