Supply Chain Now’s Guide to Supply Chain Disruptions
The modern supply chain landscape is defined by constant disruption, demanding a proactive approach to challenges. In our guide to supply chain disruptions, we delve into the critical sources of disruption reshaping the industry: climate change, global conflict, and labor disputes.
Through data-driven insights and expert analysis, we offer strategies for building resilient supply chains, emphasizing the importance of leveraging technology, supplier management, and collaboration.
Read on to learn how to navigate the complexities of supply chain disruptions and thrive in this era of uncertainty.
Working in an Era of Supply Chain Disruption
At the onset of the supply chain crisis spurred by the COVID-19 pandemic, many in the industry thought that the time of constant disruptions and delays would resolve with the pandemic. This, however, has proven far from true. Instead, our increasingly global supply chain — ever more reliant on a complex network of international transportation partners — is more vulnerable than ever to disruptions.
In this section, we’ll look at three sources of disruption transforming the industry.
1. Climate Change Takes its Toll on Normal Operations
Climate change is leading to new supply chain vulnerabilities. One significant example is the Panama Canal, a critical artery in global shipping. As climate change exacerbates drought conditions, the canal’s water levels have dropped, limiting the number of ships that can pass through and increasing shipping delays and costs.
But the Panama Canal is just one of many climate-induced vulnerabilities. Flooding poses another serious risk to supply chains. For instance, the increase in extreme weather events has disrupted transportation and damaged infrastructure, creating bottlenecks and delays. Wildfires, too, have wreaked havoc, destroying warehouses, halting transportation, and causing widespread disruption to logistics networks.
The economic implications are staggering. Supply chain disruptions are projected to exacerbate economic losses from climate change, with estimates ranging from $3.75 trillion to $24.7 trillion in adjusted 2020 dollars by 2060, depending on carbon emissions levels. As the climate continues to change, these problems will likely worsen, making it crucial for supply chains to adapt and become more resilient.
“As the ripple effects of what are likely to be ever-increasing and intensifying climate-related disruptions spread through the global economy, price increases and shortages of all kinds of goods — from agricultural commodities to cutting-edge electronics — are probable consequences,” said Christopher Mims, a Wall Street Journal technology columnist.
The pandemic is perhaps a lesson for what might be in store: Since then, the cost of shipping a container across the Pacific Ocean has leaped from $2,000 to $15,000 or $20,000.
2. Global Conflict Presents a Major Challenge to Supply Chain Security
Geopolitical tensions and trade disputes are also significant disruptors of supply chain operations. The ongoing crisis in the Red Sea serves as a prime example. Rerouting ships around the Cape of Good Hope in South Africa due to safety concerns in the Red Sea has significantly increased shipping costs and transit times: ocean freight rates have surged, reaching up to $10,000 per 40-foot container. In addition, transit times have increased by between 14 and 18 days in Europe, and fuel consumption rose by 30% compared to the route through the Suez Canal.
This crisis has also disrupted global trade, retail, and manufacturing, highlighting the fragility of supply chains amid geopolitical instability. John Catsimatidis, CEO of Gristedes, said:
“CEOs are apprehensive about future costs, particularly how prices might change 30 to 60 days from now. This uncertainty prevents them from reducing prices, as they aim to protect their earnings amidst a climate of insecurity and instability, which keeps prices elevated.”
Other conflicts, both current and potential, also pose significant threats. The war in Ukraine has had a profound impact on global supply chains, disrupting the flow of goods and raw materials, particularly in Europe. Meanwhile, tensions surrounding Taiwan raise concerns about potential disruptions in a critical region for global electronics manufacturing and broader economic implications.
3. Labor Disputes Pose Challenges to Major Logistics Hubs
Labor disruptions have made major headlines recently and could do so again soon. Labor is a critical component of supply chains, and growing pressures on the workforce are causing significant disruptions.
The International Longshore and Warehouse Union (ILWU) threat of a strike in 2023 nearly paralyzed U.S. West Coast ports, averted only by a last-minute contract agreement. While this strike was avoided, Canada’s West Coast ports saw significant impacts from a labor dispute that ended with a tentative four-year deal.
Looking ahead, the potential for strikes at East Coast, Gulf, and Great Lakes ports in October 2024 presents a major risk. Negotiations between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) are underway, but the threat of a strike looms large. Trade diversions are already starting as businesses prepare for potential disruptions.
Supply Chain Disruption by the Numbers
Supply chain disruptions have become more frequent, severe, and economically impactful. According to a McKinsey report, the average company experiences disruptions lasting a month or longer every 3.7 years. The economic impact of these disruptions is substantial, with businesses reporting an average annual loss of 30-50% of one year’s EBITDA due to supply chain shocks.
Key trends show that natural disasters, geopolitical conflicts, and labor disputes are the leading causes of these disruptions. Industries such as electronics, automotive, and consumer goods are particularly vulnerable due to their reliance on global supply networks and just-in-time manufacturing processes. Regional analysis indicates that Asia and Europe experience the highest frequency of supply chain disruptions, largely due to their dense manufacturing bases and complex logistics networks.
Surviving Disruptions: Supply Chain Now’s Advice on Building Better Supply Chains
Navigating the current landscape of supply chain disruptions requires robust strategies and proactive measures. Drawing on the expertise of Supply Chain Now’s guests and hosts, we present several key strategies for building resilient supply chains.
Supplier Management for Disruption Resilience
Diversifying suppliers, transportation routes, and distribution channels is critical to reducing dependency risks. By not relying on a single supplier or transportation route, companies can better manage disruptions when they occur. Identifying and onboarding alternative suppliers ensures that production can continue even if one source is compromised. This approach requires a proactive strategy to regularly assess and qualify new suppliers to maintain flexibility and resilience.
“Risk management is not a standalone thing. It really needs to be a part of supplier onboarding and awarding decisions, and ongoing relationship management. Any one of my suppliers can stop my production line or impact my brand image so I need to expand everything at the same time, yet I’m not given any more people or any more time to get that job done. That’s the challenge that many folks are faced with right now,” said Bill DeMartino, Chief Product Officer & Managing Director of the Americas at riskmethods in a previous Supply Chain Now episode.
Digitalization Builds Smarter Supply Chains
Leveraging technology is paramount for building resilient supply chains. Advanced tools like IoT, blockchain, and AI provide real-time visibility and predictive analytics, enabling companies to anticipate and manage disruptions proactively, for example:
- IoT devices can monitor the condition and location of goods in transit
- Blockchain ensures transparency and traceability
- AI-driven analytics offer insights for optimizing operations and mitigating risks
“A.I.s are especially powerful in finding solutions to problems that are not directly obvious to the human. With the computing power we have available these days, we are able to optimize in our terminals in ways that we wouldn’t be able to by doing it in traditional ways and we see it in our ports,” said Hans Moerman, CFO of Digital Technology at DP World in The Tech Frontier: Advancing Supply Chain Digitalization Strategies podcast episode.
Collaboration is Key in a Connected Industry
Promoting collaboration and communication among supply chain partners enhances resilience. Establishing cross-functional teams and agile response mechanisms allows for rapid decision-making during disruptions.
For instance, collaborative efforts can include joint risk assessments, shared contingency planning, and synchronized response strategies. Effective communication ensures that all stakeholders are informed and can act swiftly to minimize the impact of disruptions.
Stela Jaqueta, host of the supply chain podcast, believes that “supply chain starts and ends with collaboration” and that competitive advantage and innovation are key reasons why collaboration helps organizations build resilience.
Navigating Future Supply Chain Disruptions With Ease
Building resilient supply chains is more critical than ever in an era of constant disruption. By understanding and addressing the sources of disruption—climate change, global conflict, and labor disputes—companies can better navigate challenges and safeguard their operations. Leveraging technology, diversifying suppliers, and fostering collaboration are key strategies to enhance resilience and maintain continuity.
For those seeking to stay ahead of the curve, Supply Chain Now offers a wealth of resources and expert insights. Explore our library of podcast episodes, check out our blog for the latest industry updates, and join us for upcoming events to learn more about building robust supply chains.
Listen now to our latest episodes for in-depth discussions on these topics and more.
By taking proactive steps and staying informed, supply chain professionals can not only survive but thrive in this era of uncertainty.
