Why the World Is Facing a Supply Chain Crisis

Why the World Is Facing a Supply Chain Crisis

The global supply chain crisis spells bad news for retailers and consumers.

The Covid-19 pandemic has drastically impacted many sectors of the world economy. One of the sectors that fell on its face was the supply chain.

The pandemic and lockdown have resulted in businesses’ inefficiency in meeting unprecedented consumer demand across all product categories. Recently, Morten Engelstoft, Chief Executive at Maersk-owned APM Terminal, echoed a similar sentiment. Engelsoft said that a “vicious circle” had been created by surging consumer demand, which put a strain on container groups, suppliers and logistics companies as they struggled to deliver goods. He further emphasized the need for the supply chain sector to break this vicious circle.

“We need lower [consumer demand] growth to give the supply chain time to catch up, or differently spread out growth. Over a long period of time, we will need to recover efficiency,” said Engelsoft.

Supply lags behind growing demand

In the U.S., imports in July were up 20 percent over last year and up 11.5 percent over 2019. The rise in imports resulted from surging consumer demands, supported by stimulus packages introduced by the government to revive the economy. According to Engelsoft, the percentage increase in imports and exports in the U.S. resulted in a far more significant volume bump than elsewhere.

“It’s a percentage of an enormous volume. The sheer size of business going through is so enormous that the amount of port capacity, truckers, warehouses and even labor to man all the equipment has created a bottleneck,” he said. The pandemic has led to a global shortage of truck drivers and constricted space at warehouses, causing further delays in deliveries.

Pandemic adding to supply chain woes

This is not the first time that a business leader has warned about the overwhelming aspects of the global supply chain crisis. Scott Price, President of shipping giant UPS, recently warned customers to brace themselves for supply chain problems in 2022. According to Price, the low vaccination rates in key developing countries will likely lead to additional shortages of raw materials and components similar to those that have troubled industries, such as automakers, apparel and home builders. “The logistics industry does not see 2022 as having any less disruption in supply chains than in 2021,” said Price.

The supply chain crisis shows no sign of slowing down. According to research conducted by  IHS Markit, pressures on supply chains are increasing, and global disruptions are likely to get worse as the economy booms. Buckling the global supply chain has resulted in automakers, like General Motors and Ford, slowing down manufacturing, temporarily shutting auto-plants, and furloughing workers.

It’s time for businesses to act

Global leaders have been giving early warning signals for possible supply chain disruptions due to the pandemic. As a result, consumers are facing massive delays in the delivery of online purchases. An Accenture research indicates that 94 percent of Fortune 1000 companies are experiencing supply chain disruptions from COVID-19. Whereas, 75 percent of companies have had negative or strongly negative impacts on their businesses due to the disruptions.

“Businesses must navigate the financial and operational challenges of coronavirus while rapidly addressing the needs of their people, customers and suppliers. Supply chain leaders can turn massive complexity and supply chain disruption into meaningful change by taking the right actions,” the research states.

Thus, it’s time businesses take crucial steps to steer the current supply chain crisis and build resilience against future challenges.

Header image courtesy of Unsplash

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