Overwhelming demand and limited effective logistical capacity have been putting a strain on global supply systems. Studies show that the COVID-19 pandemic is the core cause of many of today’s global supply chain problems, including inflation. However, the pandemic is not the only cause of global supply chain bottleneck. Some of these issues are temporary, but others, like labor shortages, geopolitical unrest, and the energy transition, are structural and could become permanent if businesses do not act quickly.
Some industry insiders predict that consumers should prepare for product shortages and price hikes. As a result, supply chain visibility have never been higher on the agenda. The question that arises today is: what difficulties will supply chains confront in the coming year, and what should we anticipate?
Inflation and increased costs associated with shipping internationally
Any fluctuation in the value of a currency relative to another can have a significant impact on the bottom line of an enterprise with international operations. Trade shift’s data reveals a significant increase in shipping prices since the start of the year, despite reduction in orders. Furthermore, since the beginning of 2022, the average cost of an invoice posted on Trade shift’s website have soared by 11 percent. However, the average invoice cost increased by only 3.5 percent in 2021.
Declining demand and geographical shifts
Market research indicates that the transportation and logistics industry appear to be slowing down as a whole due to falling demand. The latest Index of Global Trade Health from Trade shift-shows that supply chain activity around the world have dropped for the second quarter in a row, falling by 6 points below what was expected.
The pandemic not only lowered demand but also caused substantial supply and demand disruptions in geographic locations, which disrupted previously efficient worldwide supply systems. Price spikes and delays are significantly worse on some major trade routes, such as those between Asia and Europe and Asia and North America.
For instance, Brexit exacerbated supply chain strains in the UK and Europe by increasing supply chain complexities and requiring additional inspections at borders.
Shortage of Labor
The smooth operation of the shipping and logistics departments of organizations depends on the efforts of truck drivers, dockworkers, and warehouse workers. If there are not enough people to move goods around the world, global supply chains could break down rapidly.
For instance, due to the shortage of workers, the production and distribution sectors were unable to meet the increased demand from consumers. Due to a lack of workers delays occurred, like the longest ever seen at the port of Los Angeles, when cargo ships had to wait weeks to unload their goods.
This problem is exacerbated by the high rate of personnel turnover. Over half of the nation’s truck drivers are over 50 years old and set to retire soon, contributing to an already high turnover rate in the trucking industry.
Although truck driving is a well-paying profession, millennials and gen z are less likely to pursue this career because of the lack of a satisfactory work-life balance it provides. Since obtaining a CDL in some states is notoriously tough, few people choose to pursue a career in truck driving. The COVID-19 pandemic has only served to draw attention to and amplify these problems.
The labor shortages affected more than just the shipping sector. Stay-at-home orders and a rise in COVID-19 cases prohibited employees from coming into warehouses. Some workers were able to earn more money by staying at home and relying on emergency federal and state unemployment compensation than they would have if they had continued to work. Sadly, many entry-level logistics jobs do not pay well. Many people opted to stay at home as it was more financially rewarding, and many supply chain businesses were caught off guard.
Weak or inadequate visibility
Some businesses are lagging in the use of global supply chain technology. Not having complete supply chain visibility limits most businesses’ data management capabilities, making it difficult for them to make future-proof decisions. Instead, they have been given confusing, out-of-date information that is supposed to show how much stock is on hand and how much has been sold.
However, by centralizing information on the cloud, Cloud Supply Chain technology aids in addressing this issue. Cloud supply chain technology is the future but adopting and deploying it is no easy feat.
Global sourcing that is sustainable
There has been a recent uptick in the awareness of logistics and supply chain professionals about the negative effects their operations have on the environment. Therefore, 2022 will see continued shifts in freight transportation and supply chain activities as more ecologically sustainable methods are embraced by governments throughout the world to fulfil their emissions objectives and pledges.
These methods influence the entire supply chain, from vehicles used for transport—like the adoption of electric delivery vans—through the relocation of distribution centers to cut down mileage. If a sustainable future is to be realized, business as usual is no longer tenable. Global supply chains must adjust to the fact that the global business world is always changing.
The upshot is a heightened emphasis on supply chain risk management among major corporations. This entails pinpointing the specific locations throughout the network where vulnerabilities may exist, calculating the extent of those vulnerabilities, and developing plans to address them. However, this intricacy raises several questions about design, strategy, and implementation.
Summing it up
To create sustainable strategies and answers to challenging problems, organizations must be robust and flexible enough to weather even the most severe shocks. Business leaders will keep their sights set on the future and keep ploughing ahead with investments in global supply chain technology that will make their companies more flexible, robust, and long-lasting.
Bartman , T. (2022) Overcoming global supply chain issues | McKinsey, McKinsey & Company. Available at: Mckinsey
NextExit Logistics (2018) Why aren’t millennials interested in trucking? | next exit logistics. Available at: Next-Exit Logistics
SCMR Staff (2022) Challenging outlook for global supply chains as costs rise while orders fall, Supply Chain Management Review . Available at: SCMR
Sweney, E. (2022) The big challenges for supply chains in 2022, World Economic Forum. Available at: Weforum
Tradeshift (2022) Global trade health index quarter 2, Tradeshift. Available at: Trade-Shift