Global Supply Chains & Covid-19
Global supply chains are being tested like never before with constant disruptions that have now spanned 17 months since the beginning of the Covid-19 Pandemic.
Global supply chains are complex. This is often taken for granted when goods arrive at your warehouse. In fact, these global supply chains often involve large distances, multiple countries, many companies and lots of people that all need to be appropriately in sync to deliver the products you order on time. With all the recent Covid-19 disruptions, there are now concerns about the fragility of these global supply chains and the implications for the remainder of 2021.
The Covid ‘Monkey’
It seems that no Country can really shake the ‘monkey from their back’ when it comes to Covid-19. Even countries that have a ‘zero covid policy’ are struggling in the face of the Delta variant. Where the East has largely enjoyed 15 months of normality (if that even exists anymore) whilst the West has lurched through multiple lockdowns in 2020 and 2021, the converse is now true. The West has been quicker to vaccinate their populations and is now ‘opening up’ on the basis that there will be a ‘vaccination wall’ to minimize hospitalizations. Meanwhile, the East – with many countries pointed to as examples of how to deal with Covid-19 – is now broadly in a state of panic given vaccinations were not seen as a priority. No country, regardless of their Covid strategy has truly loosened the Monkey’s grip.
From a sourcing perspective, this is currently having a significant impact on the ability to both manufacture and ship goods, which deserves a quick market-by-market recap.
China is still open for business but the spectre of Covid looms large. Yantian Port was temporarily shut down due to a Covid outbreak. Seen as one of the busiest ports in the World, it was a good example of the impact Covid can have on the movement of goods. Although there was some significant disruption at the time, with goods being moved to alternate exit routes, the Port was re-opened in a matter of days notwithstanding the backlog of shipments that still needed to be processed.
Just recently, Mid-August, Ningbo was likewise shutdown on the back of one case of Covid. This is a Port that moved 5.44 million 20ft equivalent units in 2020. This only further exacerbated the current fractious shipping landscape by limited the outflow options for shipments.
There have been other disruptions that have hit the region, such as the typhoon that hit the East Coast of China in Late July and the dramatic flooding that has only exacerbated the current issues. And this is all in the build-up to Black Friday and the busiest quarter of the container shipping year – Christmas and Chinese New Year.
This has all had an impact on prices at the factory gate; a combination of Covid induced fragmentation of logistics capability and excessive demand from the West super-charged by the need to replenish inventory stocks. In July, the factory PPI was up 8.8%.
Southern Vietnam is currently in a state of paralysis. The Delta variant has led to HCMC (the epicentre) being in some kind of lockdown for the past 8 weeks, with some of the largest case numbers (plus 6,000) being reported today midway through a two-week complete lockdown in which people are forbidden to leave their apartments. Although there have been continued Directives issued, there appears to be little let-up in the case numbers.
Surrounding provinces in the South have also been impacted, and with them the industrial zones of Bing Doung. Factories are operating in isolation where they are given permission to under the “3 on-site” model, which means workers can live and work on-site, or at least be transported in a bubble from a single separate accommodation location to the factory site to work and back at the end of their shift. The target date of 15th September for the local economy to be re-opened may perhaps be a stretch, but with a significant vaccine drive and severe lockdowns, there is still hope.
The devastation that the Delta variant had on India back in May, when new cases peaked at just under 415,000 in one day, was hard to watch. Cases have now ameliorated to a 7-day average of approximately 40,000 per day, 10% of the cases back in May. Manufacturing has opened up and factories are largely operating again. There are still challenges with shipments, but that is not solely a local Indian issue.
Turkey is currently benefiting from its proximity to Europe with the high freight rates. The manufacturing sector has largely managed to remain open right up to Ramadan back in April. Even though cases were up as high as 60,000 per day, these have since settled to a third of that figure as a result of lockdown measures and also a successful vaccine drive.
Two plus Two equals Zero
It is a difficult picture to pull together with any sense of predictability, which makes decision-making that much trickier. Global supply chains are cumbersome and not easily uprooted. It takes time, and with the Covid-19 appearing in different places at different times, it is not easy to plan anything. The one predictable piece of this puzzle is the predictability that there will be some kind of disruption within global supply chains. This Monkey is not going anywhere soon and the simplest advice we can give is:
- It will benefit companies to build in additional flexibility. Look at different provinces, different regions, different markets.
- You need ‘boots on the ground’ to react quickly to any incident as it appears.
- Keep your options open.
We are heading into the busiest time of the year for the shipment of products out of the East, and the current environment is most certainly going to result in stock shortages during the festive season as well as not-insignificant inflationary pressures (see our petition for the UK Government to counter these inflationary pressures).
At ET2C, our solutions are centred around flexibility. We provide our clients with access to a range of markets and suppliers on the ground across Asia. We are well placed, as your Sourcing Partner, to help you during these difficult times. For more information, please contact us at firstname.lastname@example.org.