The global supply chain crisis and its effect on the worldwide economy
4 min read
20 days ago

The global supply chain crisis and its effect on the worldwide economy

The world economic recovery continues to face some headwinds in 2022. Among them is the global supply chain crisis. Changes in the market precipitated by the waning coronavirus pandemic have created the need for companies to review their logistics and supply chain systems.

What is happening with the global supply chain in 2022?

Chip shortages, port congestion, rising commodity prices, and carrier shortages are some of the most visible effects of the supply chain disruptions that have recently harmed global commerce.

According to Accenture, 94% of the companies registered in the Fortune 1000 list ─ the largest companies in the world─ have suffered   disruptions in their supply chain operations.  These problems have been rooted mainly in the disruptions that the coronavirus pandemic has caused.

Causes of the crisis in the global supply chain

The crisis in the global supply chain is not caused by a single cause but by the total number of parts that hinder the smooth delivery of goods to customers.

  • An uneven recovery

One of the main reasons for the current global supply chain crisis has been, paradoxically, the reactivation of consumption. During the second half of 2021, renewed world economic growth was driven mainly by increased private consumption. The consulting firm Deloitte notes that this growth has resulted from two factors in particular. The first is the strong upturn in demand for products and services that were inaccessible during the restrictions of the pandemic. The second is a rise in household savings due to a contraction in overall consumption. This trend is also being reflected worldwide. The consulting firm McKinsey noted that consumer spending during the fourth quarter of 2021 increased by 7% compared to 2020. This trend was driven mainly by people with high incomes and young consumers.

The gradual recovery of consumer confidence has produced a rebound effect. As a result, the demand for products and services intensifies, especially in the sectors hardest hit by the pandemic.

  • A shortage of maritime containers

Companies that depend on international trade continue to deal with a shortage of sea containers to transport raw materials and finished products. This has led to increased freight costs and companies’ efforts to move their supply chains closer to home to places such as Mexico. A study by the consulting firm Drewry revealed that in 2020 the price of containers reached its highest level since 2011. In 2021, 5.2 million containers were manufactured to meet exploding demand. This number represents an increase of 67% compared to production in the previous year.

  • Global supply chain crisis affected by lack of Carriers

The COVID-19 pandemic also exacerbated the trucker shortage problem. Although this problem affected many of the world’s economies, the lack of sufficient truck drivers to move products in the United States has been particularly acute. Moreover, because the average age of US truckers is 55 years of age, the nation’s pool of individuals capable of long-haul transportation of goods is insufficient to meet current demand.

  • The rising price of raw materials

The shortage of raw materials, such as rubber, plastics, and wood, impacts companies in various manufacturing sectors. The rapid demand recovery on a global scale has caused raw materials to become more expensive. In addition to rising prices, supply problems affect companies that depend on the availability of materials in their production processes.

The semiconductor shortage crisis

The shortage of chips that has limited production processes is another circumstance that has contributed to the global supply chain crisis. The consumption of this technology is expanding exponentially and is critical to the functioning of the global economy. The lack of chips is a severe obstacle to the smooth functioning of global supply chains because it takes years to build a manufacturing plant. Despite this fact, investors are increasingly looking to countries closer to home, such as Mexico, to establish chip production operations.  One industry, in particular, that is feeling the pain caused by the semiconductor shortage is automotive.

The impact of the chip crisis will have short-term consequences in sectors such as the automotive industry. This has harmed Mexico-based auto industry suppliers.

  • Strong Chinese dependency

Many companies have realized that they have an excessive dependence on China for the functioning of their global supply chain. The second-largest economy in the world is in the process of contraction. As a result, companies are seeking sources for their material inputs in Mexico because it is closer to home.

  • A lack of storage area

The global supply chain crisis has also pushed the need to prioritize sufficient storage areas to accommodate all the merchandise requested by customers to the forefront. Companies that have experienced an uptick in demand have been forced to expand storage capacity.

Despite being good news for companies that are growing, this situation poses new challenges. For example, in the United States, a study by the real estate consultancy CBRE estimates that e-commerce penetration will reach 26% of total retail sales in 2025. This figure will require more than thirty million additional square meters of storage space to absorb the increase in demand.

Solutions to achieve resilient logistics in the face of new disruptions

As a result of the recovery from the global supply chain crisis, companies that have experienced an appreciable increase in demand are betting on intralogistics solutions that optimize storage space in their logistics centers. Companies can solve the lack of space with compact storage systems such as drive-in racking, live racking, push-back racking, or the Pallet Shuttle system. Within this category, automatic storage systems stand out because, in addition to taking advantage of the warehouse surface, they provide greater dynamism to storage tasks.

One of the positive outcomes of the COVID-19 pandemic has been the accelerated implementation of modern technologies in the supply chain. One of the areas with the most significant use of this equipment has been robotics in warehouses.

On the other hand, problems with supply chains have shown that companies must be prepared to face diverse situations. Having the ability to anticipate unforeseen events is key to avoiding or mitigating the effects of changes in the market. In this scenario, technologies such as warehouse management software have become an ally to anticipate problems and adapt logistics operations to unforeseen circumstances.

Porfirio Waters

President of Tecma Customs Solutions

Porfirio Waters

President of Tecma Customs Solutions

Porfirio Waters is TECMA’s President of Customs Solutions. He is a US Licensed Customs Broker and consultant with experience in fast-paced multinational organizations.