A look at potential solutions to the global supply chain crisis
24th June 2022
Why we need to be mindful of the connections between people, business, goods and transportation
While the residents of Shanghai quite rightly celebrated their freedom after 60 days in strict lockdown recently, this added yet another layer of complexity to the global supply chain crisis, which has impacted several sectors in multiple territories over the last few years.
Shanghai’s position as one of China’s most important economic hubs and the world’s busiest port, means any disruption will be felt across the globe. Investors Corners at BNP pinpoints two other forms of blockages that lockdowns such as these cause. As well as China’s biggest city, Shanghai is also one of the most important manufacturing centres and a significant intermediate goods channel so items which will eventually be made into Chinese exports will also go through Shanghai.
Raw material shortages elsewhere are being crudely experienced in the construction sector as a result of the events in Russia and Ukraine. This part of the world is a major supplier of FSC/PEFC, plywood and timber board. Carbon and steel prices have also increased recently, the availability of nickel (where Russia accounts for 40% of the global market) has suffered a direct impact on stainless steel with the price of aluminium rising too.
It’s not just the import/export and transportation costs that are on the rise but also the price of fabrication. Costs of goods such as low iron glass, for instance, have increased dramatically as have those for concrete and general building materials. The latter has a direct impact on new build projects with structural works such as new floors, slabs and infills.
Electronic components have not been immune from supply issues either, with automotive manufacturers suggesting microchip shortages will create supply problems until 2024. The iPaper recently reported “electric car and heat pump buyers face shortages for the next two years amid supply chain woes. Many customers are being left with lengthy waits and soaring prices.” This, it states, is down to emerging energy prices, shipping delays as well as the impact of lockdowns. This is also not to mention the trickle down effect with the cost of living crisis on the cost of labour, coupled with a systematic skill shortage.
In an article published this month, the FT even suggests re-examining relationships between businesses, goods and their transportation by cutting out the ‘powerful corporate middlemen’ such as large retail conglomerates, big tech firms and the financial institutions behind them. It cites Columbia University’s Kathryn Judge, author of a new book Direct: The Rise of the Middleman Economy and the Power of Going to the Source. She explains how the convenience of clicking an online shopping basket is “undermining accountability’ between buyers and sellers such as less visibility of the pay, conditions and practices of people involved in the supply chain. The question, the piece says is how to make changes and who will pay for them? It points to “the rise of peer-to-peer lending, direct-to-consumer retailers and 3D printing which allow for shorter supply chains”
More closely examining who is involved in supply chains is something that concerns us here at BW too. In terms of the conflict in Eastern Europe, BW has investigated whether there are any existing ties between our supply chain and companies backed by the states of Russia and Belarus. If there are, we would look at ways to mitigate these. We screen all clients and supply chain either from those countries on the UK sanctions list or with links to them as well as the directors and owners. In this way, we are mindful of the connections in our own supply chain between the people, business and goods involved.
Not only that but we have successfully promoted the implementation of pre-approved alternative schedules on projects. This allows us to pivot as required through the lifespan of a project and deal with any supply chain issues in a timely, effective manner.
