Most people in the business world are facing the same challenge. The pandemic has taken a serious toll on supply chain management. According to the White House, automotive inventories are at record lows, with only a one-month supply available to consumers.
All economic sectors report supply-chain disruptions. Manufacturers are bearing the brunt of the supply chain predicament with 62% of businesses surveyed reporting supplier delays within the past week. The good news is that the White House indicates that current shortages and supply chain disruptions are likely to be transitory.
As more jurisdictions ease social distancing restrictions, global demand for manufactured goods has strengthened considerably. Frustratingly, as Supply Chain Dive reports, inventories actually fell in July 2021 after two months of growth.
This conflict between supply and demand forces manufacturers to draw down inventory to sub-optimal levels. The manufacturing sector is also being held back by transportation issues and labour shortages.
As one procurement manager told Supply Chain Dive, “Purchases continue to have long lead times due to shortages of raw materials and labor force, as well as logistics challenge." Raw materials for manufacturing remain in short supply, which is pushing up prices. Transportation and logistics disruptions mean significant delays in getting raw materials into inventory.
The root cause of these challenges has been disruptions in the shipping industry. Many facilities remain closed and continual bottlenecks keep cropping up due to shortages in labour, shipping containers and freight space.
These disruptions result in lengthy delays, increased costs or both. As Supply Chain Dive puts it, “You can pay, or you can wait.” Even though consumers and end users are opening their wallets again, they don’t like to hear either message. Worse, it’s not at all certain that biting the bullet and paying higher rates will stabilize shippers’ response times.
These negative developments are delayed reactions from decisions made in 2020. For example, when the COVID-19 pandemic lockdown was at its most severe, many marine carriers mothballed container ships.
This stranded vast numbers of empty containers in inconvenient places. Now, demand for manufactured goods is surging faster than the ships can be pressed into service while the containers aren’t where they’re needed. For example, in North America, for every 100 containers that arrive, only 40 are exported. The other 60 are piling up in the wrong place.
The infamous grounding of the Ever Green in the Suez Canal disrupted global port traffic for weeks back in April. Insurance company Allianz estimated that the accident reduced global trade by roughly $10 billion per week. Even so, that accident hasn’t been the only impediment to supply chains.
Sporadic pandemic outbreaks among dock workers often thwart efforts to “build back better.” For example, Ningbo-Zhoushan in China is the world’s third-busiest container port. Management closed the Meishan terminal there when a worker tested positive for COVID-19. This led to a two-week shutdown. The Meishan terminal represents about 25% of Ningbo-Zhoushan’s capacity and wait times to dock there have doubled to 4.2 days.
This shutdown came on the heels of the closing of the port of Yantian in Shenzhen. A similar outbreak shut it down for a month beginning in late May. In shipping lanes throughout the world, vessels laden with cargo are anchored outside major ports.
Last July in California, 33 cargo ships sat at anchor off the coast of Los Angeles and Long Beach. These two ports handle roughly one-third of all US imports. Before the pandemic, it was unusual to have even one container ship anchored off Southern California.
Air freight has also been dislocated and Asia has limited capacity in this channel. Adding insult to injury, the Shanghai Pudong International Airport Cargo Terminal shut down beginning on August 20. Authorities discovered COVID-19 cases among the cargo workers there.
The suspension in Shanghai has raised transit times for Transpacific eastbound lanes by up to a week. It’s hard to say how long these suspensions will last. What we do know is that Lufthansa, Qatar Airways, Air Bridge Cargo and Polar Air Cargo are all diverting to other facilities.
FedEx, UPS and DHL all report putting unspecified contingency plans into place. All these developments have led Mazda, for example, to cancel shifts at two plants in Japan. The plants were experiencing shortages of semiconductors for in-vehicle components.
Some transportation companies have taken to shipping client cargo by land from Shanghai to Hong Kong International Airport. Of course, this is only adding to the existing congestion in Hong Kong and at other terminals across Asia.
As with marine shipping, the mismatch between supply and demand is driving up airfreight rates worldwide. Demand for consumer products is predicted to surge as the holiday season approaches. Airlines will also be required to pull aircraft out for scheduled maintenance in preparation for the coming peak period.
So, if these problems really are transitory, when can manufacturers plan for some sort of new normal? Industry watchers in Asia don’t expect to see much relief for marine and air freight logistics before the Lunar New Year.
They’ll be ringing in the Year of the Tiger on February 1, 2022. The industry consensus in the US also calls for the interruptions to continue until well into the first quarter of 2022.
Although manufacturers can’t control any of this global uncertainty, smart managers are focusing on what they can control internally. They are working to optimize the production processes and make their supply chains more resilient.
Procurement staff are finding ways to anticipate shortages wherever possible. They’re investing in new software applications to enable tighter controls and provide timely access to accurate information. They’re also diversifying their manufacturing locations to mitigate the risk.
At Kingstec, we have deep knowledge about how to overcome these issues through our nearly 40 years of experiencing and solving many different cycles of manufacturing issues. This includes sourcing components locally in the US and Canada, to leveraging our logistics partners in North America and Asia to get parts in and out of China.
Nobody knows the Asian manufacturing sector like Kingstec. We can help your business diversify by introducing you to high-quality, cost-efficient manufacturing partners in Asia, which remains the world’s workshop.
Why not call us today to discuss how you can mitigate the risks arising from ongoing global supply chain volatility?