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Global supply chain risks threaten the crisis return


U&I Logistics China's strict anti-epidemic policies have caused supply chains around the world to fall into an extreme crisis. Along with that, the conflict between Russia and Ukraine further changed the global economy, which was already severely affected by inflation.


chuỗi cung ứng toàn cầu rơi vào tình trạng khủng hoảng trầm trọng
China causes global supply chain crisis


The global supply chain problems


According to estimates by freight forwarder Flexport (San Francisco), from the time goods start leaving the factory in Asia to reach a warehouse in the US, it takes an average of 111 days. This is more than double the trip of 2019 and is close to the record of 113 days in January. Meanwhile, the westbound journey to Europe takes even longer, a near-record 118 days.

Shanghai - home to the world's largest container port, is currently responding to the worst COVID-19 outbreak by initiating a city-wide lockdown. This causes a series of vessels to be anchored offshore. Based on Bloomberg's shipping data, the total number of container ships in ports and off the hub with nearby Ningbo stood at 230 in the middle of last week, a 35% increase from this time last year.

Imported containers have to wait an average for 12.1 days before goods are picked up by trucks and delivered to their destination inland. Trucking shortages have crippled the supply key inputs to factories and transport goods, such as autos and electronics to the ships. The rate is also 3 times higher than on March 28.

Tắc nghẽn container là điểm nóng của chuỗi cung ứng toàn cầu
Container ships anchored off the coast of China (yellow dot) waiting to dock on April 20 (Source: Bloomberg)

Air freight is also being affected, goods are waiting in long queues to be delivered to Pudong International Airport (Shanghai). The congestion has also spread to Shenzhen as shipments are diverted from Shanghai. According to Mr. Donny Yang - Dimerco's director of ocean freight, to ease congestion around Shanghai, sailings are being diverted to Ningbo and Taihang.


In the US, the total number of container ships in the Los Angeles and Long Beach ports was over 57 as of the middle of last week, this is the highest number since the end of February. Other indicators such as demurrage and detention are likely to increase again.

A portion of California's backlog is simply moving eastward in search of faster routes. As a result, the congestion is reversed. The number of containers waiting to unload on the East Coast overtake those waiting on the West Coast, according to MarineTraffic.


Congestion in Europe is also getting worse. Major ports such as Rotterdam, Hamburg, Antwerp and three ports in the UK are operating at high capacity. They are struggling to receive more containers because there is no space left to hold them.


Expert Perspectives

Last week, economists at Goldman Sachs conceded that supply chain troubles are "somewhat worse than we expected, and we have slightly revised our growth and inflation forecasts in recent weeks." Stephanie Loomis, CargoTrans's vice president of international purchasing, said some companies may have tried to move their orders elsewhere or cancel them.

Experts predict that, even if the epidemic is contained, supply chain disruptions will still spread globally, lasting all year.

"We expect more turmoil than last year. It will have a negative impact on the whole of 2022," said Jacques Vandermeiren, chief executive officer of the port of Antwerp

China accounts for about 12% of global trade, and its anti-epidemic restrictions have shut down factories and warehouses, slowed truck deliveries and exacerbated container traffic jams.

Các nhà máy và kho hàng ngừng hoạt động làm trầm trọng thêm tình hình chuỗi cung ứng toàn cầu
Foxconn suspends production in Shanghai due to the spread of Covid-19

US and European ports are already flooded with cargo, so they are more vulnerable to this new shock. "As exports resume and a large number of ships arrive at US West Coast ports, we expect wait times to increase significantly.", Julie Gerdeman - CEO of chain risk analysis firm Ever Stream Analytics said.

In the short term, congestion means increased costs to the $22 trillion in global merchandise trade, which fell in 2020 and rebounded last year. In the long run, chaos is drawing the link of cross-border e-commerce. With some CEOs reeling from remote production networks, bringing factories closer to home is no longer a patriotic slogan but a necessity amid uncertainty.

Lorenzo Berho, CEO of Vesta, a developer of industrial buildings and distribution centers in Mexico, says it is turning to shorter supply chains. They want to go to places like Mexico to reduce their exposure to Asia."Globalization as we know it may be coming to an end", he said.

Key policymakers are pitching the idea of a change in supply chains for the developed world. Much of it hinges on whether the pandemic will convince consumers to pay higher prices for products produced near their homes. At least one advisory analysis showed such acceptance.

Brian Ehrig - a consultant at Kearney Consulting, said locating the supply chain

"It could cost more, but if you are producing less and selling for roughly the same price, it can be replaced. completely change the game".

According to the survey, 78% of CEOs are considering reconfiguring the supply chain. "I think globalization will never die, however, it will evolve into a different form", Kearney expert Shay Luo said.


Long-term consequences

Companies have weathered the supply turmoil last year in part by raising prices, and consumers have largely accepted. In the short term, however, tight supply from China poses a more daunting challenge to household demand.

Tesla lost about a month of production during the Shanghai closure. Retailer Bed Bath & Beyond earlier this month said inventory levels were "extraordinarily high" during periods of shipping or port congestion.

Alcoa, the aluminum giant vital to the global economy, last week blamed transportation problems for higher inventories. Continental AG, Europe's second-largest auto parts maker, has downgraded its forecast for global passenger vehicle and light commercial vehicle production growth from 4% to 6%, from 6 % to 9%

chuỗi cung ứng toàn cầu khủng hoảng gây nhiều hệ lụy
Trucks wait in line to pass an checkpoint on a highway bound for Shanghai on March 30 (Nguồn: Bloomberg)

Wang Xin, head of the Shenzhen Cross-Border E-Commerce Association, said that the blockade in the city only lasted a week, but many sellers are suffered a month's delay in delivery.

From auto manufacturers to electronics manufacturers in Shanghai have gradually resumed operations, under a closed production policy. However, ramping up production after a shutdown is not an instant process. Tesla has restarted its Shanghai factory after a three-week shutdown, but it is uncertain how long it can operate with limited supply of components.

"The change in Covid prevention policies in different cities has had a particularly severe impact on logistics", Cui Dongshu - General Secretary of China Passenger Car Association said.



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