The Supply Chain Crisis

Why Are Supply Chains In Problem?

The crisis between Russia and Ukraine, broader geopolitical repercussions, and ongoing COVID-19 lockdowns in China have made an already dire position in the global supply chain much worse. The current sanctions on Russia and the prospect of more sanctions continue to have an effect on fuel prices, adding to the overall supply chain crisis. While there is little direct exposure of freight markets to Russia and Ukraine, there are a growing number of risk factors that global logistics will need to manage, such as airspace restrictions, uncertainty about the direction of consumer demand, and ongoing bottlenecks caused by China's COVID-19 response. During the COVID-19 lockdown, supply chain issues were prevalent due to a "perfect storm" of circumstances, including changes in demand, labour shortages, and structural issues. Recent problems have been made worse by the conflict between Russia and Ukraine and the COVID-19 lockdowns in China, which have impacted supply in a number of industries, including consumer goods, metals, food, chemicals, and commodities.

Where Will the Effects of Future Supply Chain Problems Be Seen? 

• Metals and Mining: Most Russian mining businesses haven't yet encountered major logistics problems while exporting metal from Russia to Europe. However, growing logistical obstacles have increased export costs and lengthened delivery times. Due to the closure or disruption of over 60% of Russia's typical alumina import requirements, aluminum faces the greatest and most immediate disruption risk. Aluminum is a vital metal used in packaging, transportation, renewable energy infrastructure, and wiring, so the possibility of alumina shortages is an immediate and real concern that could provide problems for supply chains.
• Chemical Supply: The direct sales and profitability exposure to Russia for the majority of European chemical businesses is minimal, at about 1% to 2% of revenues. However, because Russia is a very large producer and exporter of potash, accounting for around 18% of the world's production in 2021, the supply of fertilizers is expected to be disrupted. The supply of fertilizers is anticipated to be significantly disrupted in the near future due to little or no supply from Russia and high energy prices, and price spikes have already occurred as a result of the situation.
• Technology: The technology sector is currently experiencing additional supply limitations as a result of the widespread silicon chip scarcity in the industry and the interruptions caused by the COVID-19 lockdowns in China. Apple experienced a 26% quarter-over-quarter decline in product sales in the first quarter of 2022, and things are only going to get worse. In comparison to the loss experienced in the first quarter of the year, Apple anticipates that the impact on revenue in the second quarter of 2022 will be $4 billion to $8 billion.

Developing a Plan to Avoid Supply Shortages

Either an increase in capacity or a decrease in demand appears to be the best solution. According to Samuel Bland, "On the capacity side, increasing U.S. trucking capacity and lowering COVID-19-related working limitations could help."  In terms of airfreight, we anticipate that the capacity recovery will be tied to the restart of commercial airline travel, especially for intercontinental capacity. On the demand side, we anticipate the inventory recovery witnessed in many importing countries to be beneficial. We also anticipate that some movement in the consumer's mix of spending back to discretionary services may be beneficial. More generally, growing financial strains on consumers could cause a decline in import demand.

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