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Impacts of Covid-19 on Supply Chain

When COVID-19 broke out and before governments could gain an understanding of what it was – let alone how it was spreading – it had proliferated to almost every corner of the planet and started to wreak chaos. In effect, the last time humans saw an epidemic of the like was around 100 years ago at the end of the First World War when the Spanish Flu appeared. The only defenses against COVID-19 initially were for people to distance themselves from one another and to don masks, and as a result, activity around the world wound down and humanity entered forced hibernation…




The Rebound




Aside from the illness and death that the COVID-19 global pandemic has caused around the world, it is also responsible for the forced shutdown of the bulk of commercial and industrial operations. The only measures humans could take against the virus, at the time, was to stay away from each other and put on masks. Where possible, everything had to be shut down.




Time and ingenuity have enabled mankind to take the fight back against the pathogen through vaccination. Certainly, it is not perfect armor, but it has allowed life to return to a large degree of normality, even if experts and governments need to remain vigilant. Perhaps predictably, once lockdowns around the world were eased, demand for goods rebounded.




Industrial and commercial operations ramped up again quickly. The supply chain, however – the mechanisms by which all tangibles are provided to wider society – was particularly susceptible to the advent of the lockdown, and its recovery is taking longer than anyone appears to have expected.




As reported by CNBC in October this year, the ominous prediction is that the problem is going to worsen before it turns around. Tim Uy of Moody’s Analytics (as described by CNBC) has stated how despite the resurgence of the world’s economy, it will be “stymied by supply-chain disruptions that are now showing up at every corner…” Uy also states that “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…” The result will inevitably be the stifling of global production where deliveries will not hit deadlines, prices and costs will increase, and worldwide GDP will be curbed.





Chains




As set out by the Chartered Institute of Procurement and Supply (and shown in figure 1), a typical supply chain consists of three phases: procurement, operations management, and consumption. The management of the supply chain moves in a downstream direction, compared to demand, which moves the opposite way. In its very basic form, the phases are the collating of materials, the creation of the product and providing it to the eventual customer, and the customer’s receipt and use of the product. According to the BBC World Service Podcast called Why are we seeing global shortages?’, there are a number of disturbances to the chain of supply being seen across the world, and one of the most impactive is at the procurement/inbound logistics stage of the model.




Somewhere in the region of 90% of all merchandise is moved around the seas via shipping. Of particular import is the mega container. There are only 80 in the world and laid end-to-end they would be approximately 120 km long. Such is their magnitude, few ports in the world can actually accommodate them and ones that can are referred to as hubs or mega-ports. Once one of these leviathans gets to a hub, merchandise is then loaded onto other vehicles for distribution by land, or smaller seagoing vessels.




In this way, mega containers feed merchandise to the rest of the world. It is perhaps no coincidence that China’s economy is the second-largest in the world (after the US) and has seven out of the top 10 largest seaports globally. According to the World Shipping Council, the Port of Shanghai is the largest.




Before COVID-19, the incidence of just a single mega container having to wait to enter a seaport was a rare occurrence. And for good reason, as the sheer volume capacity of just one – and its delay – can have a profound impact.




The BBC podcast makes mentions that in October this year, 70 mega containers were queuing to reach port. Various reasons have been cited for this; COVID restrictions in southern China, COVID restrictions in the Port of Los Angeles (which handles 40% of US mercantile traffic), land-based labor shortages, previous poor investment in hub infrastructure, previous port congestion, a lag in moving shipping containers to where they should be (delaying their reuse), and delays in the transportation of merchandise further down the chain causing storage congestion.




Depending on which expert one might talk to, the problem will iron itself out after the Christmas rush or will be hanging around for potentially years to come. This is without considering any future lockdowns that may need to be implemented to control new outbreaks of disease.




Commodities




Presently, one commodity that is in short supply is electronic components, or more specifically, semiconductors and microchips. One industry that is suffering at the hands of this shortage is the automobile trade.




The BBC states how in more extreme circumstances, car owners are being able to sell their car for more money than they bought it – a rare situation in the industry outside of collectibles. The primary reason is simply that new cars are not available.




Where a 50-cent chip might be needed for something as trivial as a seat adjustor, without said item, the car cannot be shipped because it cannot be completed. Factories responsible for constructing these component parts were shut down during the pandemic (in places such as the US, Taiwan, China, South Korea, and Malaysia) and are not yet back up to speed and have a backlog to address.




Yet further reasons may be contributing to the semiconductor and microchip scarcity. Big-hitting vehicle manufacturers canceled orders during the pandemic as demand waned. Without the orders, electronics manufacturers lowered production and were not ready for the sudden influx of demand months later.




Notwithstanding, the semiconductor and microchip shortfall has affected other industries too which may yet manifest as problems in other areas. Indications are also that businesses have been panic buying and hoarding electronic components creating waiting times further down the line and artificially increasing demand.




A widely used commercial supply strategy may also have helped to worsen supply chain problems: Just in Time is a business tactic that sees stock delivered where it is needed just before it is needed, the advantage is a reduction in storage costs.




It is a tried and tested concept that works well but only as long as the merchandise is readily available. Added to all of this is the evolved complexity of modern supply chains. It is widely thought the situation will have a delayed effect and make take some time to properly realign itself.

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