Supply chains are under tremendous pressure worldwide because of unrest caused by the pandemic, shortage of materials, and lack of skilled workers. The situation is even worse in places going through political turmoil, such as the UK.
This pressure is multiplied due to a sudden surge in demand for goods after lifting the lockdown. The additional burden on already-stressed transportation networks, industrial plants, and infrastructure all adds to global economic peril in the shape of product shortages, greater prices, and slower-than-expected development in essential industries.
In late September, 62 container ships queued for berths in the California ports of Los Angeles and Long Beach. Such lines were unheard of just a few years ago. Still, since the coronavirus outbreak, they have become common at several of the world’s biggest ports.
These lines of waiting ships are only one visible manifestation of the significant disturbances in supply chains. These disturbances have formed over the previous months, resulting in shortages in several critical sectors.
Today we will discuss significant pressures inflicted upon the strained supply chain.
Demand Fluctuation
Back in 2020, when the coronavirus broke free, one after another, countries started going into lockdowns, and demand for goods plunged. Lockdowns, lack of workers, and reduced sales caused many industries to slash their production.
It was complex for these firms to begin manufacturing when economies started to recover. Workers had left, suppliers had gone bankrupt, and businesses were unwilling to invest because they needed clarification on how strong the rebound would be. Capacity recovered unevenly due to components, raw materials, and human limitations.
The production cycle has been disrupted regularly since then. The pandemic’s progression and national reactions have differed from place to place. As a result, output and demand have been hampered by unexpected shutdowns in binding sites.
Disrupted Transportation System
Air freight capacity evaporated in the epidemic’s early days, and cargo was redirected to ships. Unfortunately, this meant that hundreds of overworked merchant marines were stranded at sea for much of 2020 due to excessive demand and shifting visa and quarantine rules.
As a result, many people departed the industry once they could land. Adverse weather, including a solid 2020 hurricane season, hampered ships already dealing with sailor shortages. A nearly week-long Suez Canal closure halted global trade in March.
These challenges have conspired to drive shipping costs to all-time highs; according to the Drewry World Container Index, the price of container shipping from Asia to Europe increased tenfold between May 2020 and September 2021. The worldwide shipping sector is straining to move cargo reliably from point A to point B.
Once the ships get in port, the transit issues remain. The port capacity has been stretched by uncertainty and staff shortages, resulting in lengthy delays in unloading. Once the goods are on shore, firms face debilitating transportation and rail capacity bottlenecks. Truck drivers and rail operators are in short supply worldwide, and neglected road and rail infrastructure generate blockages. Warehouse capacity is also in short supply.
Finance for Trade
Even as consumers and manufacturers struggle to bear rising costs, supply chain instability presents both danger and opportunity for trade finance institutions. Rising prices and bidding wars have increased funding demand.
Still, technological improvements used during the epidemic have reduced costs and simplified procedures in the historically paper-based trade finance business. However, dangers exist as transportation and logistics companies deal with volatile prices, scarcity, and failed counterparties.
Significant E-commerce Growth
People are shopping more online than ever before. US e-commerce sales increased 39% yearly in the first quarter of 2021. And the internet buying explosion isn’t restricted to the United States. During the COVID epidemic, Brazil, Spain, and Japan significantly increased internet sales.
This trend will likely continue, with e-commerce revenues reaching $6 trillion by 2024.
E-commerce is not going away. It is convenient, inexpensive, and provides consumers with several alternatives. And, as the demand for things online grows, so will the need for fulfillment and shipping services. Although e-commerce was already thriving, the epidemic merely exacerbated its rise.
Manufacturing and transportation, already hampered by labor shortages, could not meet increasing demand. As a result, bottlenecks developed, such as the record backlogs at the Los Angeles port, where container ships waited for weeks to discharge goods.
Meanwhile, the desire for online items has remained the same. Customers have grown accustomed to purchasing goods online. They are unlikely to revert to previous behaviors due to the ease, low cost, and speed of ecommerce.
Companies must consider new tools, processes, and tactics to react to evolving demand and customer behaviors. They must abandon restricted and inflexible supply chains in favor of technology-based logistics, which are easy to scale.
Centralized Inventory
Centralized inventory is analogous to connecting to the Internet and storing data. Organizations used to host their servers in the 1990s. Information may be lost if the server goes down. We now keep our data on decentralized cloud servers.
Cloud-based supply chain technology may assist businesses in managing inventory and fulfillment across various warehouses. This allows us to grow as needed and remain flexible in response to fluctuations in supply and demand.
Conclusion
These are some of the significant issues causing pressure on the supply chain and causing shipment backlogs. There is no easy way out of this problem except to invest in developing infrastructure supporting and scaling the supply chains. As well as incorporating technology to increase the efficiency of the entire process.
