Recent news that global food prices have reached their highest point since the 1970s (in real terms) has given cause for concern for governments and corporations alike. However, the adjacent supply chain crisis, which is being touted as a reason for these price increases, is not so much a supply crisis as a logistics crisis. The current high demand for goods is being met in terms of production but cannot be accommodated with existing logistics infrastructure. While governments are attempting to alleviate inflation where they can, until the logistics crisis is solved, prices will be difficult to keep down as demand outstrips supply, company profits fall, and the market becomes less competitive.
To illustrate the scale of this logistics problem: China is currently manufacturing record volumes of shipping containers in response to shipping companies struggling to keep up with global demand for basic goods. Three Chinese trade associations make up to 80% of the world’s containers, and Chinese production has increased by two-thirds compared to 2020, as reported by the Financial Times.
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There are fears that an increased supply in containers will not be enough. The backlog is already so vast, and there are shipping bottlenecks forming reminiscent of the infamous Ever Given Suez Canal blockage back in March. Indeed, one of the worlds largest port operators, Maersk, warned in early September that the only way to ease the supply-chain crisis was for consumer demand to fall, for people to buy less. These are not the words goods manufacturers want to hear as many companies struggle to recoup Covid-19-related losses.
What does this mean for the future?
UPS has stated that the supply chain crisis will ‘leave a permanent scar’. What the company is alluding to is damage to the globalisation efforts of multinationals. If importing goods from oversees is no longer cost-effective, or logistically viable, then stores will likely pivot to more local supply sources.
There appears to be a growing understanding that having a supply chain that stretches the globe can leave companies open to undue risk, a risk that could be avoided by sourcing locally. Ultimately, if this current crisis continues, then a more thorough reorganising of global trade could be on the horizon; a reorganisation that sees multinationals embedded more at a local level, relying less on globalised logistics.
Another mega-trend that intersects with these issues is environmentalism. Companies are increasingly marketing their goods based on their carbon footprint and wider environmental impact. Localised supply chains will help companies to meet these targets while stepping out of the problems that currently plague global commerce. Globally, 16% of consumers say that how ethical or environmentally friendly a product is ‘always’ influences their choice, a further 26% say it ‘often’ does, and 34% say it ‘somewhat’ does. With only 24% stating it ‘never’ or ‘rarely’ influences them, brands could solve two problems with one solution by moving supply chains closer to distribution.
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By GlobalData
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