The surprising conclusion of this week’s webinar – Post COVID-19 EFFECTS TO THE SUPPLY CHAIN – was how the resilience of China and global supply chains are being highlighted in the Post-COVID world.
Over 200 supply chain executives joined Björn Wahlström and Stefan Holmqvist online, to explore the post-pandemic landscape, consider the profound changes that have impacted global supply chains and discuss three emerging trends.
There is no doubting that the pandemic had a chaotic impact on supply chains, but it has raised the prominence of this critical, vital activity and made supply chain resilience a new top priority for shippers, forwarders, carriers and ports.
The outbreak was a shock to the transport systems during the start of the year.
After significant disruption, road transport capability was restored within just a few weeks.
Air carriers initially “grounded” their passenger fleets, with 50% of cargo moving as belly load in reconfigured passenger flights. Capacity will continue to be limited until travel restrictions are lifted.
Ship and container imbalances and capacity uncertainty have driven up spot prices and while the demand picture remains clouded, carriers could quickly return capacity to the market.
Rail services have been robust and increasingly popular.
TREND 1, Near-shoring & moving production from China
Two years before the pandemic appeared the US imposed the first round of 25% tariffs on US$34 billion of China exports and started calling for production reshoring.
In May US imports from China jumped to an eight-month high as US retailers rushed to replenish inventory.
The primary beneficiary of the shift in sourcing from China was Southeast Asia and while US retailers and manufacturers are expected to continue expanding their sourcing in Southeast Asia, especially Vietnam, those countries are hampered by limited production, labour, port and transportation resources.
The recapture of US imports market share for China shows how difficult it will be for US importers to shift sourcing to Southeast Asia to any significant extent, as retailers continue to rely on factories in China for the majority of their merchandise imports.
Higher-value products such as electronics will need workers with higher skills, therefore if imports from Asia pick up in the third and fourth quarters, China is likely to recapture some market share because its idled productive capacity and trained labor force can return quickly.
TREND 2, Robust supply ecosystem
Businesses have invested heavily and built their supply chains over decades, often ingraining into regions and not just a single country.
China’s supply base has been very robust compared to many other areas in the region and underlines why companies are attracted not only for low labor costs, but first class logistics and a growing internal market.
Ports have experienced congestion and the pandemic has spurred interest in automation, including automated cranes, automated guided vehicles, automated port railway operations, and automated barge operations between nearby container ports.
TREND 3, From supply shock to demand issue
The regions first hit and “so far” first out of the pandemic are also significant supply chain regions; Japan, Taiwan, Korea, and China.
Supply and demand were affected badly during the pandemic but there were still some positive developments a recent survey from The Business Continuity Institute found.
Nearly three quarters of organisations (73%) encountered some or significant detrimental effect on the supply side, with 64.8% reporting the same on the demand side, while 20% reported an increased demand for their products and services.
After the first shock to the systems, supply chains have remained in place with physical assets intact.
The situation has developed from a supply problem to a demand issue as the pandemic continued to affect the economy and consumer behaviours.