MUCH OF THE time, most people don’t think about the intricate choreography that makes modern shopping possible. Just click and wait – and not too long, watch out – for one or three packages to arrive at your doorstep. In recent months, however, global supply chains have come to the fore as growing demand for goods and supply disruptions have restricted trade flows. In ports around the world, dozens of ships stacked with containers waiting at anchor for their turn to unload, while the cost of shipping a box from China to the west coast of the United States has increased by about tenfold. compared to pre-pandemic level.
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You might think that snafus represent the beginning of the end of globalization. Consumers are learning how infections halfway around the world or a ship stuck in the Suez Canal can disrupt near-instant access to the goods they take for granted. Manufacturers are finding that lean supply chains can mean inadequate access to critical components as well as low costs. The disruption is one of the reasons inflation is high in America, Britain and elsewhere. But amid the logistics blues, markets are working the way they tend to be and companies are finding ways around blockages. Under intense pressure, global supply chains are in fact not failing; rather, they adapt.
The problems started in 2020, when companies that had slowed production in anticipation of a recession faced strong demand for cars, electronics and home exercise equipment instead. Generous stimulus measures, especially in America, have kept order books full as the pandemic has shifted spending toward goods rather than services. Producers of computer chips have been unable to keep up with the rush. The shipping industry had no spare capacity and faced a series of disruptions, from the stranded ship saga Never given, closing ports amid covid-19 outbreaks and storms like Hurricane Ida. With the stretched system, an incident anywhere affects the movement of goods everywhere. Experts estimate that it may take a year or more for conditions to return to something like normal.
In the meantime, companies are not twiddling their thumbs and abandoning global supply chains. Instead, they improvise. Some retailers, like Walmart, have decided to charter entire ships exclusively for their own cargo. Passenger planes are refitted for freight. Chipmakers assess their priorities: TSMC, from Taiwan, supplies some automakers and Apple before producers of computer servers, say. Soaring shipping costs themselves help adjust the flow of goods. Higher transportation costs hardly affect the price of expensive electronics that can be crammed into containers, but are more important for bulky, low-value products like patio furniture. Some consumers may be disappointed, but that means shipping tangles depreciate trade value less than they would otherwise.
Tensions on supply chains will leave their mark. This year, capital spending will be exceptional – global investment is expected to be 15% above pre-pandemic level by the end of 2021, believes Morgan Stanley, a bank. Companies are aware of the risks associated with shipping disruptions and trade disputes and adapt their investment programs accordingly. In places like America and Japan, they have been encouraged by government policies to encourage the “relocation” of production. Toshiba, a Japanese electronics company, is closing a long-standing factory in China. A number of automakers are bringing pieces of their supply chains in-house or at least closer to home, especially for chips. New orders for smaller container ships may reflect the idea that production will become more regionalized.
Global supply chains will survive this ordeal. Indeed, the adjustments and investments made in response to recent misfortunes are likely to make them better able to cope with disruptions, by ensuring an adequate supply of critical components, for example. This should eventually allow them to fade out of sight and out of mind once more. â
This article appeared in the Leaders section of the print edition under the headline “Why Skippers Are Not Scuttled”