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The supply chain disruptions that started as early as the US-China trade war and worsened with time due to COVID-19, and more recently the brewing inflation and recession, have led to an overall supply chain slowdown globally. The phenomenon, apart from other factors, is caused by situations like port congestion, a shortage of containers, and disruptions in the supply of raw materials and components. As a result, long-lasting effects on the global economy are being felt strongly, in response to which, industry leaders are working tirelessly towards further enhancing the resilience of supply chains. In this story, we explore the concept of this global slowdown and its impact on supply chains.
When it comes to the global supply chain slowdown, it is rather unfair to put the blame on a particular incident or trend. It was, in fact, a result of a perfect storm that various supply chain disruptions, bottlenecks and delays created. Major incidents like the Russia-Ukraine war and COVID-19, when combined with the long-simmering geopolitical tensions had a compounding effect on the already weak supply chains.
During the first two years of the pandemic, there was a frenzy of shipping activity coupled with freight prices going off the charts. However, lately, the supply chain capacity has well exceeded the demand, causing freight rates to take a sharp fall. It’s almost like supply chains taking a minute to catch their breath after many months of being overworked.
Every item that could be sorted as an ‘essential’ was in high demand when the pandemic was at its peak. But that is no longer the situation. Consumer demand is wavering, shelves aren’t all that empty and warehouses are overstuffed with inventories. Enumerating a few triggers to the slowdown, Coen van der Maarel (Managing Director of Kuehne+Nagel India, Sri Lanka, and the Maldives) says, “Major logistics setbacks had a knock-on effect, resulting in a build-up of items in storage, which caused delays or diversions with ships as they approached ports, affecting global commerce flows and making it more difficult for companies to import goods and replenish their inventory supplies. Labour shortages, pandemic-related economic activity limitations, semiconductor shortages, increased freight costs, and shipment delays are some of the other factors that have contributed to this slowdown. Furthermore, the geo-political unrest has created uncertainty, putting pressure on the global distribution network.”
“Due to the global rise in inflation, overall demand has reduced as consumers cut down on expenses. The higher cost of logistics in 2021-22 increased the cost of all products by 1.5% globally. The rise in cost of living has also led to labour unrest in ports, railways, trucking companies etc., and shortage of labour in the US and Europe is also a big hindrance,” adds Subhendu Das (Managing Director, Hellmann Worldwide Logistics).
During the last six to eight months, data shows that global container volumes fell sharply, even during a period when shipping is usually at its strongest. Along with other factors like eased out port congestion and global economic downturn, this has resulted in freight rates plummeting.
This is an abridged version of the story that was published in the March issue of Logistics Insider magazine. To read the complete version, please click here.
