The COVID-19 pandemic has had a significant impact on supply chains and, as a result, global trade. This has greatly affected people's lives and livelihoods all around the world, as many of our needs are dependent on a working and resilient global supply chain.
Disruptions in the global supply chain have led to shortages and the inability of businesses to operate as usual. These have been illustrated in the media by images of empty store shelves and cargo ships waiting at sea.
Container shipping freight rates are reaching record highs and transport capacity is being held up in already congested ports, largely fueled by the boom in eCommerce. This represents a dual problem for developing countries who are distant from global production hubs.
Aside from the disruption of food supplies and delivery of much-needed vaccines, the supply chain crisis is predicted to lead to a hike in global consumer price levels by an additional 1.5 percentage points due to increased maritime transport costs, according to a recent Review of Maritime Transport by the United Nations Conference on Trade and Development (UNCTAD).
What Caused the Supply Chain Crisis?
Movement restrictions that followed the pandemic led to huge challenges for manufacturers and producers across several economic sectors. Operations slowed down at all levels and outputs fell significantly.
On the demand side, economic stimulus packages and a boom in eCommerce growth led to additional pressure on carriers, ports, and transport providers. But beyond such factors, the dramatic decline in workforce participation, as reflected in truck-driver shortages for example, has also impacted the supply chain significantly.
Backlogs across major supply chain hubs are a significant contributor to the supply chain crisis. Ongoing tensions between major economies have also impacted the global supply chain, and renewed confrontations may prolong the situation.
Fixing the Crisis
Improve Supply Chain Resilience
Prior to the pandemic, Fourth Industrial Revolution technologies were already reorganizing global value chains, bringing with it significant relocation of production. The pandemic has only accelerated this trend, thereby emphasizing the importance of resilience in production and supply chain management.
Improving supply chain resilience also presents an opportunity to developing countries to develop and strengthen regional value chains through regional trade agreements. This means that small firms can cooperate to reduce transaction costs and benefit from economies of scale.
Address Labor Shortages
Shortage of labor in the transportation and warehousing sectors has been a significant contributor to the supply chain crisis in the US and across the world. Of particular concern is the shortage of truck drivers. As a result of this and other factors like inadequate transport infrastructure, cargo is taking longer to reach its destination.
Efforts must thus be made to better incentivize transportation and warehouse workers in order to attract more licensed truckers and reduce the supply chain crisis.
Diversify the Supply Chain
One of the major lessons from the pandemic is a need to diversify supply chains and reduce reliance on a single country for critical products. For example, the emergence of the COVID-19 pandemic in China resulted in the shutting down of factories across the country, leading to massive supply chain disruption for companies and consumers reliant on Chinese products.
It is therefore important for all countries to look beyond their current supply sources in order to ensure demand can be met.
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