We have a look at supply chain shortages, some key factors and events that contributed to their appearance in 2021 and set the course for interconnected in 2022.
This second year of pandemic and global restrictions has brought some particularly interesting consequences. Search up “shortage” next to virtually any other attribute and you’ll likely find a news piece from 2021 on this: shipping containers, coal, natural gas, steel, urea and AdBlue, microchips, corn, sugar, timber, packaging materials, you get the picture. Some of these shortages were more or less expected, others, such as the eggs or ketchup maybe less so.
Typically, these shortages are explained by ‘the pandemic’. However, the pandemic seems to be the scapegoat for all supply chain challenges in the last 2 years, even in cases where causal links are difficult to find. Rather than providing a blanket statement we’ll be looking at events and factors in logistics, environmental policies, and technology to try to explain why some issues have arisen. In particular, we’ll be focusing on:
· The Suez Canal obstruction
· Environmental and emission reduction policies
· Digitalisation push
The Suez Canal obstruction
Container shipping was virtually invisible in most media outlets until the Suez Canal obstruction involving the Ever Given. Since then, the refloating operation, the skyrocketing shipping rates and the port congestion have made news regularly. At the peak of the crisis, more than 360 ships were waiting to transit the Suez Canal, causing an estimated US $10 billion in economic damage per day – from lost transit revenue for the Canal authority, insurance fees, inventory costs and lost shipping revenue. It’s no surprise that raw materials, ingredients, and goods are missing from factories and shelves worldwide. Shipping containers are also scarce as more containers are stuck in transit or in congestion.The Suez Canal obstruction certainly caused many of the issues experienced by supply chains, however it was not the only factor.
Environmental and emission reduction policies
Environmental and emission reduction policies have been increasingly enacted in the past years. In 2021, some of the (less desirable) consequences of these policies became more visible.
I wrote several weeks ago about China’s suspension of Australian coal imports which reduced its urea and AdBlue production. It turns out that this decision had more impacts. China’s decision to restrict coal imports also contributed to steel shortages. With dwindling coal supplies and rising coal prices, China faced power outages. To curtail power consumption, several key industries were ordered to suspended production. In November 2021, 35 of China’s 50 magnesium smelters were ordered to stop production. Magnesium is a critical component in steel and aluminium alloys production and China has a near monopoly in its production: China supplies 85% of the world with magnesium and accounts for 95% of European imports. Magnesium shortages played a role in steel shortages and will likely affect European car manufacturing in the coming year.
The European Union’s COP26 commitment to reduce natural gas emissions, coupled with the accelerated decommissioning of the Netherland’s Groningen gas field exploitation (the largest gas field in Europe) and tensions with Russia over the Nord Stream 2 gas pipeline have also reduced natural gas availability across the European Union. Importantly, natural gas is not only used for heating homes during winter, but also in many industrial processes – as raw material or heating source. Much like China, the European Union may soon find out just how useful natural gas is for their industry and economy.
Ironically, the emission reduction policies that target fossil fuel consumption can sabotage the transition to greener fuels by restricting the production of the raw materials required to build renewable energy facilities.
The digitalisation push
Everything is software and software requires semiconductor chips. Smartphones, laptops, and tablets already consume a large proportion of the world’s microchip production. As cars, watches, refrigerators, and other devices get ‘smarter’, they require more chips. However, the chip manufacturing capacity hasn’t kept up with demand, especially as demand for personal computers and data centres shot through the roof in early 2021. The chip shortage seems severe in the automotive sector where an increasing number of microchips are used.
The semiconductor chip shortage may force manufacturers to ask themselves an important question: It can be digital, but should it be digital? On the one hand, adding screens and ‘smart’ features has allowed manufacturers to consistently increase prices without significant product innovation – what was once a button or a dial has now become a screen. On the other hand, manufacturers are facing the prospect of lost sales and revenues if their products fail to reach the market. An easy way out would be to deliver less ‘smart’ products, although this in itself raises an important question – if the 2022 model is less ‘smart’ than the 2021, why is it more expensive?
Interconnected in 2022
2022 will see the Logistics, Emerging Technologies, and Environment series expanded with 6 additional reports. These reports aim to holistically explore current and future supply chain issues and are aimed at businesses practitioners, policymakers and governments as a vehicle for improving integration and visibility along key supply chains. Whether you are a truck or vessel fleet manager, a potential adopter of digital technologies, looking to engage local or international supply chain partners, a policymaker or simply interested in supply chains trends, the Logistics, Emerging Technologies, and Environment series will prove an insightful and worthwhile read.
Have a look below at what’s planned for 2022. In the meanwhile, you’ll see regular commentary and insights on current news.
In other news
When people see the bill to replace an electric car battery, they get innovative LINK or they blow up their car LINK
The second ship fire this month – this time a fire that reignited during salvage operations of a damaged vessel. LINK
Ship captains may sometimes try to speed-up docking procedures with mixed results. LINK