A Look Forward: Supply Chains, Global Markets and Sustainability
By Jon Santiago
In the wake of unprecedented disruptions brought about by the COVID-19 pandemic, the resilience of global supply chains has emerged as a focal point of concern and adaptation for businesses. As the echoes of the initial shockwaves reverberate through the business world almost three years later, post-covid changes to global supply chains continue to influence the very fabric of our economic landscape. In my article from last December, COVID, Politics and Shortening your Supply Chain, I discussed the challenges that supply chains faced amidst the chaos of lockdowns and uncertainty, and I reviewed the benefits of near shoring product networks. Today, global trade remains as unstable as ever, yet heightened awareness continues to fuel a commitment to supply chain readiness, and readiness in turn spurs the formulation of actionable strategies designed to navigate future risks and unforeseen events.
“As businesses worldwide brace for the uncertainties that lie ahead, a review of supply chain and trade strategies has become a necessary response to the challenges posed by the unpredictable currents of trade we experienced over the past 3 years.”
"Supply chains became the leading issue of the COVID era,” I noted, and indeed, the reverberations of this assertion remain true. The domino effects of supply chain disruptions have rippled from “boardrooms to dining rooms”, shaping the choices we make as businesses and consumers. The words I echoed in the previous article, continue to resonate: "Business leaders in the current global environment need to review lessons learned over the past 3 years and prepare their organizations for the future." These words have never rung truer, as we stand on the threshold of a new chapter in the evolution of our global economy as supply chains begin to enter a new normal.
In this short series, I will explore 2 pivotal factors that will continue to cast their shadow over global trade and supply chains in the next 12 months and beyond: 1) continued market volatility; and 2) sustainability & climate change. These elements, while distinct in nature, are inextricably woven into the fabric of supply chains and the broader global business landscape.
Market Volatility: Import and Export data as a leading indicator.
In the realm of global commerce, the current climate continues to be characterized by persistent uncertainty. However, this prevailing awareness of instability has produced a proactive approach to preparedness. As businesses worldwide brace for the uncertainties that lie ahead, a review of supply chain and trade strategies has become a necessary response to the challenges posed by the unpredictable currents of trade we experienced over the past 3 years.
This heightened awareness of market fragility is underscored by recent shifts in major economies. According to a recent article in Bloomberg, China, a global export giant, recently reported a substantial contraction in overseas shipments, mirroring the impact of Covid-19 in early 2020. Similarly, Germany, a prominent economic player in the world of manufacturing, experienced a marked decline in exports, indicative of a notable downturn. Even the United States, a significant global exporter, encountered trade contractions leading up to June. Nevertheless, amidst these fluctuations, the US economy draws strength from strong domestic demand, setting it apart from its counterparts.
For shippers, there are many areas to examine, but we will look at two here: the accuracy of internal demand forecasts within your business and the resilience of consumer strength within your target market(s). Internally, a more accurate understanding of your company's demand projections is paramount. As market dynamics fluctuate, aligning your production and inventory strategies with these projections will be crucial in avoiding both understocking and excess inventory challenges. So, what steps can you take? It starts with breaking down silos and connecting stakeholders across your organization. Supply chain teams affected by these changes should collaborate closely with Strategic Business Intelligence professionals, including economists and global risk management specialists. By sharing information (seeking out expertise) and working together, they can provide decision-makers with more accurate data inputs, leading to better-informed decision-making criteria.
Equally essential is gauging consumer resilience wholistically and within your business segment(s). The strength of consumer spending, shaped by factors such as disposable income, employment levels, and consumer sentiment, plays a pivotal role in shaping demand. A thriving consumer base can often cushion against the headwinds of economic fluctuations, providing a lifeline for industries sensitive to market volatility. So far in the U.S., this has remained the case, though spending has shifted further away from goods and into services – for the time being, at least.
Lastly, it is important for shippers to tread with caution. A delicate balance exists between depleting existing inventories to match fluctuating demand and avoiding the pitfalls of underestimating market trends and consumption within your segment(s). While import and export figures provide valuable insights, they are not crystal balls, but rather aids that help guide us through the complexity of global commerce. In a world more interconnected than ever, adaptability remains a hallmark of successful supply chain management. As we embrace the insights offered by these indicators, we equip ourselves to make informed decisions in the ever-shifting landscape of trade and global business.
Sustainability & Climate Change in Global Trade: Navigating Challenges
The ongoing issue of sustainability and climate change is commanding increasing attention as it intersects with global supply chains and international trade. Recent events, such as the congestion in the Panama Canal, a critical artery in international trade, due to ongoing drought conditions, underscore the profound impact that environmental factors can have on the movement of goods and the resilience of global trade networks.
According to CNBC, at the time of this writing, 154 commercial vessels are currently awaiting passage, with an average wait time of approximately 21 days. This situation highlights the environmental pressures and vulnerabilities facing maritime transportation networks. The Panama Canal Authority's measures to manage congestion, including the reduction of booking slots for vessels, illuminate the cascading effects of climate-related challenges on trade efficiency.
The implications of such disruptions reverberate far beyond Central America. The Panama Canal is a linchpin for U.S. shippers sending goods to Gulf and East Coast ports, handling a significant portion of U.S. container traffic—about 40% annually, representing approximately $270 billion in cargo (ITA). This dependency makes the canal's operational disruptions a significant contributor to the broader vulnerabilities within global supply chains.
So, how else does this affect shippers? The current approach to water conservation, characterized by reducing vessel transit capacity and limiting booking slots, is a temporary measure to address water scarcity. Yet, this action has resulted in extended waiting periods for vessels, which will encourage businesses to seek alternative routes. Such a shift could have ripple effects on transit times, fuel costs, and freight expenses. Remember, disruptions in one location will show up elsewhere, albeit with a lag.
Global shippers are facing an urgent imperative to respond to the challenges posed by the demand for sustainability in the face of climate change, which underscores the need for a multifaceted and adaptive approach. Shippers must explore alternative routes and transportation modes, seeking to reduce reliance on vulnerable passages and supply networks. Like a good stock portfolio, this means diversification, which involves not only considering different trade corridors and manufacturing bases, but also leveraging technology to optimize operational efficiency and lane/mode optionality. Additionally, shippers can reconsider supply chain strategies, with a focus on inventory management and demand forecasting to mitigate the disruptive effects of delays.
Conclusion
Lastly, collaboration and communication are paramount as shippers navigate these complexities. Partnering with stakeholders across your supply chain—including logistics partners, local and national governments, and key industry players—allows for shared insights and coordinated responses. Shippers can also actively engage in sustainability initiatives, seeking to reduce their carbon footprint and adopt greener practices. By investing in cleaner technologies, such as sustainable manufacturing processes or working with partners using energy-efficient vessels and alternative fuels, global shippers can align their operations with environmental responsibility. Overall, the response of global shippers to the challenges of sustainability and climate change involves a blend of adaptability, innovation, and collaboration to ensure the resilience and long-term viability of global trade networks.
Jon Santiago a seasoned Forum Solutions Senior Consultant with deep experience in global trade & supply chain, brand development and international business risk management. He holds a Bachelor of Science in Political Science from Portland State University and a Master of Arts in Applied International Studies from the University of Washington.
Forum Solutions is a management consulting company dedicated to crafting and delivering transformational outcomes for our clients, our colleagues, and our community. With our help, clients become more agile, resilient, and connected, bringing great ideas to fruition with brilliant results. From start-ups to the Fortune 50, business leaders rely on Forum Solutions to help them form and realize their strategies. Our company is a certified Woman Owned Business that believes in developing and growing our colleagues, company, and region in a socially conscious way.