Global Supply Chain Networks Set To Undergo A Sea Change

Whenever the new normal is achieved by nations across the world, the global supply chain network will not look the same and will operate differently than the one the pandemic has uprooted.

Just as the global supply chain was limping back to normalcy with the Covid-19 vaccination, the outbreak of the Delta and Omicron-variants have become a mot in the eye of global trade. Thus, the global supply chain has turned costly and time-consuming and it can produce surprising detours in the coming days.

The highly transmissible Omicron-variant can result in the mother of all supply chain crisis as it spreads across the world and raises the risk of factory shutdowns and lockdowns. The new variant has already started wreaking havoc on the US and the European Union.

The impact of the Omicron-variant on global supply chains with the acute shortage of labor and goods is posing a threat to the complex global logistics that underpin the modern economy and globalization.

The journey of many thousands of miles by goods involving different times zones, complex networks of barges, warehouses, robots, shipping containers, trucks, and workers is not going to be the same anymore.

The disruption in global supply chains occurred with a spectacular increase in consumer demand, partly due to largesse by governments and central banks.

Different parts of the world witnessed breakdowns in the supply chain that got exacerbated for different reasons, too. Power shortages in China, for instance, affected production in factories while in the U.K., Brexit resulted in a shortage of truck drivers just like in Germany.

The new pandemic outbreak in China has seen an entire city of nearly 13 million people forced to stay at home and the spread of the pandemic in one of its suburbs has turned operations at the world's third-largest container port, Ningbo, topsy-turvy.

Chipmakers like Samsung and Micron had expressed concerns over the strict lockdown in the city of Xi'an in central China which has mothballed their manufacturing facilities there.

China handles seven of the world's 10 largest container ports so its zero-tolerance approach to the pandemic has disrupted international trade. Shipping accounts for nearly 90 percent of the global transport of goods.

Similarly, the risk-aversion due to Omicron-variant has impacted US ports and transport, leading to serpentine queues at ports and lengthy delivery time for cargo ships, and delayed flow of goods to US companies and consumers.

Global supply chains are really made out of people and are manned by them. Though much automation is there, people have to be there to run all of the automation and to work alongside it.

In California, the Los Angeles and Long Beach ports - which are the chokehold for the dominant Asian-U.S. trade route, were given instructions to operate round the clock to unload cargo ships. However, there is a shortage of truckers and trucks to move them.

The delays in shipping from ports of origin to destination ports, caused by congestion, have increased the time it takes a container to travel between China and the U.S. by more than 80 percent and the shipping rates from Asia to the US have skyrocketed.

The current supply chain-driven delays are caused to a large extend by transportation and labor issues rather than factory shutdowns and shortage of essential goods that were common early on during the pandemic

Clogged ports, especially on the US west coast, have become symbols of the current distortion in the global supply chain which forced President Joe Biden to appoint John D. Porcari as the national port envoy last summer.

Besides the Delta- and Omicron-variants, there have been all kinds of natural disasters, extreme weather conditions, and political confrontations which have forced many ports and factories to down the shutters all over the world.

Malaysia got shut down due to severe flooding recently, affecting a key link to the global semiconductor supply chain.

From milk and canned goods to athletic shoes, toys, and more, the long wait of consumers across the world is expected to continue for some time and the "just-in-time" supply chain operations, the hallmark of modern economies, will not look the same anymore by undergoing a sea change.

Will it get worse before it gets better?