How the Crisis in the Global Supply Chain Affects You?

Currently, exist is a global supply chain crisis that sooner or later will end up affecting us all.

Imagine a racing car moving at high speed and suddenly braking for no reason. This illustrative example helps us to understand that the global economy was experiencing strong growth and due to Covid-19 I had to stop unexpectedly.

It was several months during the confinements where the factories could not function. Goods could not leave, products did not arrive and raw materials were not produced.

Meanwhile, after the beginning of the global recovery towards normality, the global supply chain of inputs and raw materials is stagnant. This has forced several companies to close factories and has caused operational problems in ports. This shortage then punishes world growth, as reported by the IMF.

Commodities, in general, come mainly from emerging countries where pandemic management is still difficult. These countries have faced multiple surges in demand following the economic downturn caused by the health crisis.
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The pandemic has revealed the global dependence on factories in Southeast Asia. With sectors like the textile of Vietnam, or the electronics and the automotive of China stagnant.

The challenge for companies will be to make their supply chains more resilient without weakening their competitiveness. To meet that challenge, managers should first understand their vulnerabilities and then consider several steps—some of which they should have taken long before the pandemic struck.

Factories Have Been Forced To Stop Operations

Many factories worldwide had to close due to the lack of inputs to work. In products such as semiconductors, for example, these closures have had a snowball effect in automobile assembly plants.

The global auto sector is expected to lose $ 210 billion (€ 180.8 billion) in 2021, according to some experts.

Investors are also concerned about cyber attacks, natural disasters, or power cuts in China due to the lack of coal and the energy crisis in general.

Modern products often incorporate critical components or sophisticated materials that require specialized technical expertise to manufacture.

It is very difficult for a single company to possess the breadth of capabilities needed to produce everything on its own. Consider the increasing electronic content of modern vehicles. Automakers are not equipped to create touch screens in entertainment and navigation systems or the myriad microprocessors that control the engine.

Manufacturers in most industries have turned to suppliers and subcontractors who narrowly focus on just one area, and those specialists, in turn, usually have to rely on many others.

Ports Suffer the Impact of the Pandemic in the Supply Chain

The Chinese port of Ningbo-Zhoushan, 250 km from Shanghai, third in the world in terms of shipments, closed for two weeks in August due to a Covid-19 outbreak.

As a consequence, the containers that were supposed to be in Egypt at the time were blocked in China. The same situation occurred in May with the closure of the Chinese port of Yantian.

Add in the increasingly violent typhoons, additional UK customs checks with Brexit and new sanitary measures for crews and goods, and Christmas presents seem more and more distant.

In addition, the containers that cannot leave due to lack of cargo accumulate in the import ports. As a result, there is a shortage of export ports in China.

Likewise, the port of Los Angeles (in the United States), where 40% of the containers destined for the United States arrive, is obliged to operate 24 hours a day to reduce delays.

In Europe, several giant container ships with Christmas items have failed to unload in the British port of Felixstowe and have been diverted to Rotterdam or Amsterdam.

If this situation continues, get ready to receive your Christmas present in the first quarter of 2022 and prepare to see a collapse in the financial markets globally.

If companies cannot deliver on time, their stocks will undoubtedly fall, and if panic sets in, the great gains we have seen so far in the stock markets will disappear.

Thank you for reading our article, at AtoZ Markets we want to keep you always informed.

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