The world’s supply chain crisis isn’t going anywhere in a hurry, with an industry insider making a grim prediction about what comes next.
The supply chain nightmare that’s been plaguing the planet for years is set to remain for the long-term, according to an industry insider’s grim prediction.
The problem was caused by severe backlogs across major supply chain hubs as a result of the Covid pandemic, and later the invasion of Ukraine.
But while many expected the crisis to ease now the world was transitioning to Covid normal, it seems that may not be the case.
Speaking to Bloomberg, Tim Scharwath, global forwarding, freight CEO at logistics giant DHL, said while port congestion will start to ease in 2023, there won’t be a return to pre-Covid levels.
“It’s going to ease in 2023, but it’s not going to go back to 2019,” Mr Scharwath told the publication.
“I don’t think we’re going to go back to this overcapacity situation where rates were very low. “Infrastructure, especially in the US, isn’t going to get better overnight, because infrastructure developments take a long time.”
The good news is that pressure will start to ease next year after new container vessels are finally delivered and post-Covid demand starts to cool – but other issues, such as China’s ongoing Covid lockdowns including in Shanghai, which is home to the world’s biggest port – are expected to throw a spanner in the works.
Mr Scharwath also warned that a trucker strike in South Korea will also wreak havoc, while big ports in Europe, such as Hamburg and Rotterdam, were currently feeling the strain as a slew of ships arrive from Asia – and that any minor disruption would now have major global consequences for the fragile industry.
“Any stress you put on top of it, doesn’t matter where in the world, will have influence in other parts of the supply chain,” he said.
“Five years ago, the Korea situation wouldn’t have had an impact. Now it has.”
According to the New York Federal Reserve’s global supply chain pressure index, which notes factors including backlogs, delivery times and freight costs, the world’s supply chains were facing unparalleled strain, with the situation worsening recently as a result of Chinese lockdowns and “geopolitical developments” which were causing delivery times and costs to blow out.
That was echoed by managing director of Sydney freight forwarding firm Stelno Group, Carlos Villazon, who told news.com.au back in January that he believed the crisis affecting Australia in particular was here to stay for another 18 to 24 months.
“It’s going to be very uncertain for the next 18 to 24 months for the industry, because whether you like or not, there are only two ways to get stock in the country – vessels or aircraft,” he said.
A major problem has been the lack of regulation of shipping lines, which allows companies to “collude” together and put up prices, which Mr Villazon said resulted in a “very scary market for everyone”, with companies now starting to push those increased costs on to customers.
At the same time, airlines have drastically reduced their fleets and teams during the pandemic, making it next to impossible for the aviation industry to simply pick up the slack.
Mr Villazon said skyrocketing shipping prices coupled with Covid and the China-Australia trade war had created the “perfect storm” which had hit the nation hard, with Omicron providing yet another blow.
And writing for The Conversation last month, logistics experts Sarah Schiffling and Nikolaos Valantasis Kanellos explained that even if there is a best-case scenario with the Ukraine crisis contained and no more lockdowns in China, “the global supply chain is clearly going to be under heavy pressure for the rest of the year” at least, with a recent UK survey revealing most companies were bracing for the pressure to continue in 2023.
“For smaller businesses in particular, a failure to adapt to the changing environment could threaten their survival,” the authors wrote.
“At a time when fears of a recession are already in the wind, this could make longer-term economic recovery all the more difficult.”
However, they noted there were reasons to be “cautiously optimistic”, with the crisis prompting companies to factor in potential future problems which will likely make “supply chains a bit more robust in future”.