Six key factors contributing to the current global supply chain strain
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- Published: Tuesday, 23 November 2021 09:39
As one of the world’s largest commercial property insurers and a supply chain resilience expert, FM Global has identified six drivers of the current global supply chain crisis. These are:
COVID-19
The pandemic has disrupted demand (as consumers have hunkered down) and product supply (as factories have suspended production), setting up a bullwhip effect of supply and demand mismatches.
FM Global takeaway: Although the pandemic triggered supply chain problems, other contributors are the proliferation of chip-based products and intensification of demand, which aren’t going away.
Cyber risk
A May cyber attack on the Colonial Pipeline disrupted US fuel supply for less than a week but revealed the soft underbelly of modern supply chains – that is, a tight integration with digital systems that will intensify with the arrival of 5G broadband cellular networks.
FM Global takeaway: cybercrime has become big business and a geopolitical flashpoint, making cyber security an integral part of business strategy. Cyber security requires vigilance, intelligence, employee training, advanced technology and international diplomacy.
Port backlog
Goldman Sachs has estimated that US$24 billion of goods have been lingering outside of California ports alone as ocean-shipped goods have accumulated faster than workers can move them along.
FM Global takeaway: Unfortunately, there are no assurances that backlogs and elevated shipping costs won’t linger through the middle of next year or longer.
Truck driver shortage
Many countries of the world lack enough truck drivers to move the goods that are backlogged in ports and elsewhere. At last reckoning, 20 percent of Eurasia’s road transport driving jobs were unfilled, according to the International Road Transport Union, and an estimated 80,000 truck driving jobs were unfilled in the US, according to the American Trucking Associations.
FM Global takeaway: This shortage will strengthen the case for autonomous-vehicle development and for lowering the interstate truck-driving age.
Deadly floods
Deluges in China and Europe have destroyed communities, severed railway links, and disrupted manufacturing.
FM Global takeaway: Although no single weather event can be conclusively attributed to a changing climate, flooding is a well-documented effect of warming temperatures and a growing risk to business.
Chip shortage
The pandemic closed factories and triggered a surge in technology demand, tension that was exacerbated by severe weather, shipping backlogs, and stockpiling. The shortage has affected auto, gaming, smartphone, and medical device manufacturing, among many other industries, and is expected to extend as far as 2023 or beyond.
FM Global takeaway: This shortage looks familiar. Chip booms and busts have been common throughout the technology’s history and are likely to recur in the future.
For more information on current supply chain resilience issues view the 2021 FM Global Resilience Index.
