Stuck in Transit
Wondered how the products that we see on the shelves in supermarkets reach there? Most of the time, the presence of these products is a sign of well-functioning global supply chains. Global supply chains are networks which may be spread across multiple countries and continents and involve the flow of resources, processes and information which are crucial to the purpose of sourcing and supplying goods and services.
Under normal circumstances, the importance of these supply chains goes unnoticed. However, the circumstances after the onset of the pandemic have been nowhere near normal and the empty shelves, clogged ports, raw material shortages and outrageous waiting periods are a testament to this. The United States of America(USA) is majorly affected by the global supply chain crisis and while the situation is better in India, it too is struggling due to this crisis. The automobile industry in India has been badly affected by the crisis, the supply chain issues mean that the supply is falling behind the increasing demand for passenger vehicles. According to the president of the Federation of Automobile Dealers Associations of India (FADA), there is a 30-40% shortage in production and car manufacturers are struggling to sustain production. Apart from this nearly all manufacturing firms across the world are facing rising costs due increasing costs of energy and raw materials caused by the disarray in the global supply chains.
This brings us to the main question, what is causing this crisis?
The biggest driving force behind this crisis is the coronavirus pandemic. The pandemic has demonstrated the world’s reliance on raw materials and factories in Asia. The demand which had dropped during 2020 has bounced back again, and the materials required for many goods and services travel through or are imported from Asia. However, Asia is facing the delta variant of the virus which has resulted in lockdowns in many countries. Hence, factories have shut down and crucial raw materials are unavailable for use. For example, the shutdown of semiconductor factories due to the delta variant has adversely affected the electronics and automobile industry. Carmakers can face up to $210 billion losses this year. The other industries have been affected too, with the closure of Vietnamese textile factories causing major losses to brands such as Adidas and Nike and the energy crisis creating a backlog of several months in Chinese factories.
However, the pandemic alone cannot be blamed, shortage of containers has massively increased shipping costs (a container which cost $2,500 before the pandemic now costs $25,000), while blocked/closed ports also increase the delay..
The global supply chain crisis has hit the USA the hardest where the situation on land is no better. There is a huge shortage of truck drivers (almost 60,0000) and the railroads remain idle due to the inability to unload goods from the railcars . The shifting of manufacturing overseas by domestic companies to avail cheaper labor and materials has made the USA vulnerable to supply chain breakdowns. Hence, the country is now facing a shortage of nearly everything due to the crisis.
The worst part is that experts say that they don’t see the situation around the world getting better for at least a few months since factories can’t start working at full capacity immediately and the shipping and container issues aren’t likely to resolve quickly either.
To conclude, we can say that the global supply chain crisis has arisen owing to the breakdown of each stage of this chain (containers, ports, railroads, warehouses, and trucks) in different ways. When everything works the way it should, we don’t even realize the vast and complex processes involved in international supply chains. However, when something fails (or in this case, nearly everything has), the crisis that follows is quite evident.