Thanks to the rollout of coronavirus vaccines, the global economy is slowly starting to emerge from the pandemic.
But Covid-19 has left one very destructive economic issue in its wake: Disruption to global supply chains.
The rapid spread of the virus in 2020 prompted widespread shutdowns of industries around the world and, while most of us were in lockdown, there was lower consumer demand and reduced industrial activity.
As lockdowns have lifted, demand has rocketed. And supply chains that were disrupted during the global health crisis are still facing huge challenges and are struggling to bounce back.
This has led to chaos for the manufacturers and distributors of goods who cannot produce or supply as much as they did pre-pandemic for a variety of reasons, including worker shortages and a lack of key components and raw materials.
Different parts of the world have experienced supply chain issues that have been exacerbated for different reasons too. For instance, power shortages in China have affected production in recent months, while in the U.K., Brexit has been a big factor around a shortage of truck drivers. The U.S. is also battling a shortage of truckers, as is Germany, with the former also experiencing a large amount of backlogs at its ports.
Situation ‘will get worse’
Unfortunately, experts like Moody’s Analytics’ Tim Uy say that supply chain problems “will get worse before they get better.”
“As the global economic recovery continues to gather steam, what is increasingly apparent is how it will be stymied by supply-chain disruptions that are now showing up at every corner,” Uy said in a report last Monday.
“Border controls and mobility restrictions, unavailability of a global vaccine pass, and pent-up demand from being stuck at home have combined for a perfect storm where global production will be hampered because deliveries are not made in time, costs and prices will rise, and GDP growth worldwide will not be as robust as a result,” he said.
“Supply will likely play catch up for some time, particularly as there are bottlenecks in every link of the supply chain—labor certainly, as mentioned above, but also containers, shipping, ports, trucks, railroads, air and warehouses.”
Supply chain bottlenecks — congestion and blockages in the production system — have affected a variety of sectors, services and goods ranging from shortages of electronics and autos (with problems exacerbated by the well-known semiconductor chip shortage) to problems in the supplies of meat, medicines and household products.
Amid higher consumer demand for goods that have been in short supply, freight rates for goods coming from China to the U.S. and Europe have soared, while a shortage of truck drivers across both the latter regions has exacerbated the problem of getting goods to their final destinations, and has led to high prices once those products hit store shelves.
The pandemic has only served to highlight how interconnected, and how easily destabilized, global supply chains can be.
At their best, global supply chains lower costs for businesses, due to often lower labor and operating costs linked to the manufacturer of the products they want, and can spur innovation and competition.
But the pandemic has highlighted deep fragilities in these networks, with disruption in one part of the chain having a ripple-down effect on all parts of the chain, from manufacturers to suppliers and distributors with disruptions ultimately affecting consumers and economic growth.
Supply chain crisis hits growth
As economies get back on their feet, the supply chain crisis has come to the fore as one of the biggest challenges governments now face. Covid-weary citizens are eager to spend again but are finding goods either absent or much more expensive.
The issue is now looming large ahead of Christmas too and last week, White House officials warned that Americans could face higher prices and sparser shelves this festive season with the Biden administration trying to alleviate blockages at ports.
