• Advertise
  • Contact Us
  • About Us
  • Supplier Directory
  • SCB YouTube
  • Login
  • Subscribe
  • Logout
  • My Profile
  • LOGISTICS
    • Air Cargo
    • All Logistics
    • Express/Small Shipments
    • Facility Location Planning
    • Freight Forwarding/Customs Brokerage
    • Global Gateways
    • Global Logistics
    • Last Mile Delivery
    • Logistics Outsourcing
    • LTL/Truckload Services
    • Ocean Transportation
    • Rail & Intermodal
    • Reverse Logistics
    • Service Parts Management
    • Transportation & Distribution
  • TECHNOLOGY
    • All Technology
    • Artificial Intelligence
    • Cloud & On-Demand Systems
    • Data Management (Big Data/IoT/Blockchain)
    • ERP & Enterprise Systems
    • Forecasting & Demand Planning
    • Global Trade Management
    • Inventory Planning/ Optimization
    • Product Lifecycle Management
    • Sales & Operations Planning
    • SC Finance & Revenue Management
    • SC Planning & Optimization
    • Sourcing/Procurement/SRM
    • Supply Chain Visibility
    • Transportation Management
  • GENERAL SCM
    • Business Strategy Alignment
    • Education & Professional Development
    • Global Supply Chain Management
    • Global Trade & Economics
    • HR & Labor Management
    • Quality & Metrics
    • Regulation & Compliance
    • SC Security & Risk Mgmt
    • Supply Chains in Crisis
    • Sustainability & Corporate Social Responsibility
  • WAREHOUSING
    • All Warehouse Services
    • Conveyors & Sortation
    • Lift Trucks & AGVs
    • Order Fulfillment
    • Packaging
    • RFID, Barcode, Mobility & Voice
    • Robotics
    • Warehouse Management Systems
  • INDUSTRIES
    • Aerospace & Defense
    • Apparel
    • Automotive
    • Chemicals & Energy
    • Consumer Packaged Goods
    • E-Commerce/Omni-Channel
    • Food & Beverage
    • Healthcare
    • High-Tech/Electronics
    • Industrial Manufacturing
    • Pharmaceutical/Biotech
    • Retail
  • THINK TANK
  • WEBINARS
    • On-Demand Webinars
    • Upcoming Webinars
    • Webinar Library
  • PODCASTS
  • VIDEOS
  • WHITEPAPERS
Home » Blogs » Think Tank » Will Global Supply Problems Choke Off Economic Recovery?

Think Tank
Think Tank RSS FeedRSS

Will Global Supply Problems Choke Off Economic Recovery?

Shipping
Vessels loaded with shipping containers are docked at the Yangshan Deepwater Port in Shanghai, China. Photo: Bloomberg.
July 19, 2021
Robert J. Bowman, SupplyChainBrain

Numbers from the first quarter of this year show that the U.S. economy is “back in business.” But can it keep up the momentum?

The good news comes from the latest Index of Globe Trade from Tradeshift, a B2B supply chain payments platform. The first quarter of 2021 was “the first time we saw global growth on par with pre-pandemic levels,” says chief executive officer Christian Lanng.

The U.S. economy was the prime factor behind global growth during that period, chalking up a 10.5% rise in trade activity. Parts of Northern Europe trailed well behind, with China “flattening out” after a sizzling performance in the second half of last year, Lanng notes.

Vibrant consumer demand in the U.S. was a major driver of economic growth in the first quarter, and Lanng “absolutely” expects that trend to continue in the second quarter. With the world struggling to emerge from the COVID-19 pandemic, he ascribes the positive results in part to relatively high vaccination rates in the U.S. and major economies. “It’s pretty clear that there was a direct correlation to accelerating trade,” he says.

The picture is marred, however, by serious supply issues. Nearly one in five suppliers said they were struggling to keep pace with demand. While manufacturing orders shot up 80% in March year-over-year, invoices were up just 20%. The resulting lack of cash flow was keeping suppliers from ramping up production and filling orders, Tradeshift reports.

Meanwhile, the global trade landscape was dotted by “zombie companies,” those relying on government stimulus funds for their continued existence. That’s money that would have been better used as working capital by companies with an actual chance to survive, Lanng says.

Additional obstacles to meeting the current surge in demand include a severe shortage of semiconductors, the blockage of the Suez Canal by the Evergreen Line containership Ever Given, and heavy congestion at key ports, especially in Southern California. An estimated 4.5 million cars won’t be delivered in the months ahead due to a lack of semiconductors to power internal systems, Lanng says.

Don’t expect a recovering global trade system to return to the model that prevailed before COVID-19 hit. Analysts blame many of the recent supply shortages on the popular just-in-time theory of minimizing inventory levels in order to keep costs low. Declares Lanng: “The whole idea of a JIT supply chain is stone dead.”

The shift is toward a “just-in-case” model with higher reserves of safety stock, and a few companies saw it coming well before the pandemic arrived. Toyota, which pioneered the notion of JIT and “Lean” manufacturing supply chains, began stockpiling semiconductors 10 years ago, Lanng says. That’s why it’s the one major automaker that has enough supply on hand now.

Stocking strategies calculated to cut costs have ended up having the opposite effect. The U.K. has spent around £20 billion on personal protective equipment and hospital supplies to deal with COVID-19 over the past 18 months, according to Lanng. Had it stockpiled those items prior to the pandemic, the price would have been closer to £2 billion pounds. “They just wiped out 10 to 15 years of savings in one year by running JIT,” he says.

The end of government stimulus programs, both for businesses and individuals, is likely to create some speed bumps on the road to recovery. A rash of bankruptcies, especially in the small to midsized range, is a possible consequence. But Lanng expects the workers cut loose by those failures to be immediately absorbed by surviving companies, many of which are struggling to fill open positions. The outcome rests in large part on how quickly the unemployed and under-employed return to the workforce.

Yet another possible outcome of the post-pandemic era is a shift in the balance of power between buyers and suppliers. In recent years, and especially during the pandemic, the latter have been forced to accept lengthier payment terms, placing many at peril. But it takes time for major suppliers to ramp up production when the economy heats up, and “suddenly the supplier side is holding the power,” Lanng says. “My guess is that some of those payment terms are going to snap back.”

A new semiconductor factory takes two years and $15 billion to build, Lanng notes, and suppliers might be reluctant to invest that much time and money when the technology is changing so fast. They’re also aware of how rapidly supply-demand balances can shift, with the possibility of a glut of semiconductors hitting the market within the next couple of years. Under such a scenario, manufacturers serving the lower end of the semiconductor market could get “slaughtered,” Lanng says.

For manufacturers and global traders, a key question remains: How much have they learned from the latest crisis, and how well are they prepared to weather the next one? Their ability to benefit from the rosy economic picture that appears to be taking shape depends on making some key adjustments to supply and logistics strategies.

Global Supply Chain Management Global Trade & Economics Supply Chain Security & Risk Mgmt Automotive High-Tech/Electronics

RELATED CONTENT

RELATED VIDEOS

Subscribe to our Daily Newsletter!

Timely, incisive articles delivered directly to your inbox.

Popular Stories

  • DOCUMENTS BEARING THE INSIGNIA OF US CUSTOMS AND BORDER PROTECTION LIE ON A TABLE

    New CBP Regs Call for Greater Diligence by Brokers in Reporting Security Breaches

    Freight Forwarding/Customs Brokerage
  • A WORKER IN A WAREHOUSE, SUPERIMPOSED WITH GRAPHICS SHOWING SUPPLY NETWORK

    Enabling Intelligent Visibility With Supply Chain Analytics

    Data Management (Big Data/IoT/Blockchain)
  • A HAND TURNS A LARGE, LIGHTED DIAL WITH THE WORD RISK ON IT iStock-NicoElNino-1364371014.jpg

    Measuring KPIs and KRIs for Comprehensive Supplier Performance Management

    Technology
  • GSCMS-Promo.png

    Watch: Introducing the Global Supply Chain Marketing Summit

    Education & Professional Development
  • A COMPLEX SERIES OF ROADWAYS AND RAMPS, SEEN FROM HIGH ABOVE, IS PARTLY SHROUDED BY CLOUD

    Supply Chain Visibility Isn’t Just a Catchphrase; It’s an Imperative

    Logistics

Digital Edition

Scb nov 2022 sm

2022 Supply Chain Innovator of the Year

VIEW THE LATEST ISSUE

Case Studies

  • New Revenue for Cloud-Based TMS that Embeds Orderful’s Modern EDI Platform

  • Convenience Store Client Maximizes Profit and Improves Customer Service

  • A Digitally Native Footwear Brand Finds Rapid Fulfillment

  • Expanding Apparel Brand Scales Seamlessly with E-Commerce Technology

  • How a Global LSP Scaled its Security Program and Won More Business

Visit Our Sponsors

Orderful Yang Ming Alithya
Barcoding Blue Yonder BNSF Logistics
CoEnterprise Data Capture Deposco
E2open GAINSystems Generix
Geodis GEP GreyOrange
Here Honeywell Intelligrated IFM
Infor Inmar Keelvar
Kinaxis Korber Lean Solutions Group 2H
Liberty SBF Locus Robotics Logility
LogistiVIEW Lucas Systems MCA Connect
MPO Nvidia Old Dominion
OpenText ORTEC Overhaul
Parsyl PMMI QIMA
Redwood Logistics Ryder E-commerce by Whiplash Saddle Creek Logistics
Schneider Dedicated Setlog Holding AG Ship4WD
Shipwell Tecsys TGW Systems
Thomson Reuters Tive Trailer Bridge
Vecna Robotics Verity
Verusen
  • More From SCB
    • Featured Content
    • Video Library
    • Think Tank Blog
    • SupplyChainBrain Podcast
    • Whitepapers
    • On-Demand Webinars
    • Upcoming Webinars
  • Digital Offerings
    • Digital Issue
    • Subscribe
    • Manage Your Subscription
    • Newsletters
  • Resources
    • Events Calendar
    • SCB's Great Supply Chain Partners
    • Supplier Directory
    • Case Study Showcase
    • Supply Chain Innovation Awards
    • 100 Great Partners Form
  • SCB Corporate
    • Advertise on SCB.COM
    • About Us
    • Privacy Policy
    • Contact Us
    • Data Sharing Opt-Out

All content copyright ©2023 Keller International Publishing Corp All rights reserved. No reproduction, transmission or display is permitted without the written permissions of Keller International Publishing Corp

Design, CMS, Hosting & Web Development :: ePublishing