Industry News

A Breakdown of Current Supply Chain Threats

 

It’s pretty sobering when the list of supply chain issues is starting to look like a CVS receipt. In this month’s writeup, we thought it would be beneficial to break down some of the major threats (we know there are more). Some of these overlap with others, but hey, that’s the beauty of the supply chain—everything is connected.

Chinese Lockdowns and COVID-19

The outbreaks in China have caused nationwide lockdowns that will severely impact the global supply chain. To what extent, we don’t know, though we’re certain the bullwhip effect will be substantial and long-lasting. Beijing has given no indication of how long the lockdowns will last. As of last week, cases in Shanghai decreased, however, cases in Beijing increased, which is forcing tighter restrictions. Ports are operating normally but factory operations (really one of the most important factors here) are hit or miss. With the slowdown in the flow of goods, this will impact not only when you receive your air fryer but the cost of your air fryer, which brings us to our next threat, inflation.

Inflation

Transitory, not transitory, wherever you may stand on inflation, it’s here with some of the biggest price increases in 40 years. Some have indicated that because of inflation, consumers stateside will slow their spending and give supply chains a much-needed breath of fresh air. That said, data released last week showed that consumer spending has not slowed and rose 1.1% in March. With continued congestion, shippers will continue to charge higher prices and pass that on to businesses, some of which are small businesses that are being forced to pay exuberant prices for goods entering the U.S.

Regulation

It’s easy for an Amazon or a Walmart to find ways around current supply chain woes. Buy or charter your own cargo ship, use company-owned cargo jets, lease some land for your own container yard, and the list goes on. For small and medium-sized businesses, the financial risk of getting caught up in supply chain congestion is very real. Shippers are passing on extremely high detention and demurrage charges to businesses that have no choice but to pay in order to get their goods delivered. Many have started to put pressure on Washington to step in and regulate these fees. While the issue is far from solved, there is progress being made. Last week, the Federal Maritime Commission stepped in and fined Hapag-Lloyd for fees imposed. The Ocean Shipping Reform Act also just passed through congress, which aims to keep ocean carriers in check.

Labor Strikes

We reported last month on the possibility of a longshoremen labor strike on the West Coast. The impact of a strike could be catastrophic, impacting 22,000 dockworkers and bringing imports and exports on the West Coast to a standstill. Reasons for a potential strike include hazardous working conditions, automation of ports, and compensation. The International Longshore and Warehouse Union indicated that they will not come to the table to negotiate until this month. Read our full analysis here.

Infrastructure

COVID-19 expedited the inevitable. It was only a matter of time before the cracks in port and transportation infrastructure were exposed. Transportation Secretary Pete Buttigieg is pushing to approve $23.6 billion for aviation modernization, $4.45 billion for transit projects, $3 billion for safety programs at the FHA, $1.5 billion for infrastructure construction grants, and $230 million for port projects. Many believe the $230 million for ports is a very small number when compared to the overall economic impact of these import/export doorways. Regardless, improvement needs to be made in order to keep up with increasing consumer demand. 

War in Ukraine

There is a massive vulnerability to Europe’s reliance on crude oil from Russia and agricultural commodities from Ukraine. Nearly 25% of the world’s wheat, 60% of sunflower oil, and 30% of barley exports are from Ukraine. As Russian sanctions become more strict, their ability to wage economic warfare on Europe becomes more probable. This will have a global impact on commodity prices. Additionally, the threat of Russian cyberattacks is at an all-time high with supply chain companies potentially in the crosshairs.

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