A Recap of the Global Supply Chain Crunch

By  //  October 28, 2021

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Global supply chains are going through a crunch at the moment. The reasons for this crunch are many and varied. Two critical factors, though, are increased shipping costs, which have risen by over 50% in just the last year alone, and rising fuel prices.

These two issues combined with an increase in demand from emerging markets is causing problems across all industries. This article will look into how these changes affect vehicle manufacturers and what they can do to mitigate them.

The first thing that needs to be considered when looking at global supply chain management is the fact that there are now more than 7 billion people on Earth. The amount of people who need food has doubled since 1970 while the number of cars produced has quadrupled. Those stats give you a sense of the huge volume of goods being transported each year.

Furthermore, the way we manufacture goods has also changed. We are now more reliant than ever before on global supply chains, and firms involved in global supply chain management. If we take China as an example, 70% of their exports go towards manufacturing products like electronics, clothing, and vehicles.

As you might expect, most of those items end up being shipped overseas. That brings us to the situation we now face.

Supply Chain Slowdown

Due to the recent COVID-19 pandemic, countries around the world have been forced to close borders and limit travel between regions. Initially, that resulted in a slow down in the demand for goods as economies went into recession and global trade slowed down.

As economies have opened up again, however, consumers have started buying more goods. That has resulted in a situation where more goods need to be delivered on fewer ships. The consequent result has been a significant increase in international shipping costs. 

This means that companies are having to pay significantly higher freight rates to get their cargo to its destination. Companies also face additional challenges on the US side when the goods reach port. A shortage of lorry drivers means transporting goods on the final leg of the journey to the business or consumer.

Put together, these issues are a major issue for businesses of all sizes. Those especially hard hit include are companies involved in the manufacture and shipping of goods with a small profit margin. For example, in the aerospace industry, companies involved in the shipping of high-tech expensive electronics have an easier time than aerospace fastener suppliers operating on thin profit margins.

Semiconductor Shortages

Alongside a crunch in the shipment of goods, we are also facing a semiconductor shortage. Semiconductors are used in everything from smartphones to computers. They are essential components in almost every electronic device today.

In order to meet increasing demands, semiconductor makers have had to ramp up production. However, due to the coronavirus outbreak, factories were closed until recently. As such, it’s taken longer than expected to bring back production levels.

That means that some parts of the supply chain are running out of stock. Noticeably hit by this issue are companies operating in the automobile sector. This includes car manufacturers, component suppliers, and even automakers themselves.

For instance, Tesla Motors was forced to halt deliveries of Model 3 electric cars because they couldn’t find enough batteries. In addition, Ford Motor Company announced plans to cut 10,000 jobs worldwide. It’s estimated that nearly half of them will come from plants located outside North America.

It is estimated that the semiconductor shortage will cost the automobile industry $210 billion dollars. And if things continue as they are, experts predict shortages could last through 2022. That will impact the goods you find on the store shelves this holiday season.

That said, despite the shortages, many experts believe that the current crisis won’t last long. The problem businesses face is how to deal with the current situation.

How Companies Are Managing

Companies are taking different approaches to dealing with the problems caused by the slowdown in shipments. Some companies have been forced to produce goods that don’t include many of the high-tech components that you would expect. Others have simply stopped producing certain products altogether.

Many large corporations are turning to third-party global supply chain management companies to handle much of their transportation needs. These firms provide services ranging from warehousing to trucking. However, there are plenty of smaller companies that can’t afford to hire specialists to manage their logistics operations. Instead, they’re trying to make things work as best they can.

One company that’s found itself in this position is the American manufacturer of industrial tools. Its name is Stanley Black & Decker. When the pandemic began, it decided not to ship any new orders. Instead, it focused on fulfilling existing contracts. That way, its customers could continue receiving supplies while waiting for new orders to be shipped.

Another company that’s faced similar difficulties is the French automotive supplier Valeo. Like Stanley Black & Decker, Valeo has chosen to focus on servicing existing clients rather than starting new projects.

The Bottom Line

As mentioned earlier, the impact of the global supply chain crunch isn’t going away anytime soon. Businesses need to adapt to the current situation and review sourcing and supply chains. If your business relies heavily on international trade or if you operate within one of the industries most affected by the virus, then you should consider implementing measures like those outlined above.