Six global supply chain developments to watch

Mon 21 Nov 2022
Posted by: Phillip Adnett
Trade News

Global supply chains

Developments in global supply chains never stop. From Brexit, to Covid and then the war in Ukraine, there have been plenty of supply chain shocks in recent years. Here the Daily Bulletin considers six major developments that traders have to stay across. 

1. China to loosen up

According to the former Australian prime minister, Kevin Rudd, China is likely to make significant headway in easing its tough zero-Covid policy by the middle of next year.

Speaking at Bloomberg New Economy Forum in Singapore, Rudd said he believed there had been an “inevitable crab walking” away from the hardline approach since the end of the 20th Party Congress, reports SCMP.

There are signs the Hong Kong model is being emulated in cities in Guangdong and elsewhere, and barring a new variant, “China will by midyear be well on its way to being out of this”, he said.

The Economist reports that China announced 20 tweaks to its “zero-covid” policy on 11 November, including a reduction in quarantine times for travellers arriving from abroad; an end to the suspension of flights if airlines carry too many covid-infected passengers, and an end to mass testing unless it is unclear how infections are spreading in an area.

2. Ukraine will continue to disrupt

The war in Ukraine is the “single most important negative factor” for the world economy this year and next, IMF chief Kristalina Georgieva told CNBC

The IMF has previously issued warnings on the fragmentation of the global economy as a result of the Russia-Ukraine war, and cut 2023 growth forecasts to 2.7%, the weakest growth profile since 2001.

“We are seeing some signs of fragmentation already and they come from a legitimate concern … the security of supplies,” Georgieva said.

At the G20, the usually bland statement from world leaders surprisingly condemned the war in Ukraine, stressing “it is causing immense human suffering and exacerbating existing fragilities in the global economy – constraining growth, increasing inflation, disrupting supply chains, heightening energy and food insecurity, and elevating financial stability risks”.

According to the Diplomat, the blunt declaration, revealed the isolation of Russia over its unprovoked invasion.

3. Climate turns up the heat

The UK is already experiencing disruption to domestic supply chains from floods, droughts, high temperatures and other extreme weather in the UK, according to a report by the UK Climate Change Committee.

The CCC highlighted poor weather conditions in 2020 cutting the value of the wheat crop by £500m to the lowest since 1981.

A recent survey from the Business Continuity Institute found 42% of all respondents identified that extreme weather events had resulted in supply chain disruptions. 

As covered in the IOE&IT Daily Update, the WTO has said international trade is a ‘critical’ part of transforming the world economy to fight climate change

4. Brexit a hindrance

Supply chain disruption is partly a factor of Brexit in the UK with public and private sector organisations naming it as an issue.

Dame Jackie Daniel, chief executive at the Newcastle Hospitals NHS Trust, has said that global supply chain issues and “the impact of Brexit” are making it harder for hospitals to get hold of key medical items like needles and syringes.

"Recent disruption has included blood bottles, tracheostomy tubes, needles, syringes and often it is multiple disruptions running at the same time, which change on a weekly basis,” she said.

Stephen Phipson, CEO of Make UK, told Investment Monitor that Britain’s former position as a just in time logistical hub in the heart of Europe has been reset by Brexit.

“We are really seeing the end of just-in-time manufacturing in the UK. There has been massive change for the industry and ‘just in time’ has virtually stopped,” he said, and pointed out the need for more immigration to fill manufacturing jobs.

A survey by the UK Gasket and Sealing Association (UKGSA) found 92% of participants cited ‘importing’ as a big concern, with 42% saying there were ongoing Brexit issues, reports the European Rubber Journal.

The OBR’s report yesterday reiterates its view on the impact of Brexit on UK trade – namely that it will result in the UK’s trade intensity being 15% lower in the long run than if the UK had remained in the EU.

5. Bird flu outbreak

Britain could have run out of eggs by Christmas as a result of rising costs and the ongoing outbreak of avian flu, reports Sky.

The British Free Range Egg Producers Association (BFREPA) said that the cost of feeding hens has gone up by at least 50% and fuel has increased by 30%.

Bird flu was declared in Britain earlier this year and keepers are legally required to keep their birds indoors and follow strict biosecurity measures.

However, many birds have been culled with more than 100,000 put down at three Scottish farms amid the UK's worst avian flu outbreak, reports the BBC.

Robert Thompson, of NFU Scotland’s poultry review working group, said: “By February we reckon there will be 7.9m less hens, so if you are out of eggs now they are going to be very scarce by spring.”

6. The post-pandemic supply chain

Perversely, less congestion at sea has put additional pressure on some retailers who don’t have room in full warehouses for the new stock, according to the Loadstar.

Amazon’s announcement that it is axing 10,000 jobs has spooked the logistics sector that the ecommerce boom is over, reports Supply Chain Magazine.

Industry watchers have been especially surprised that the planned layoffs come at the beginning of peak holiday season when seasonal hiring usually increases. 

However, a report from the International Chamber of Commerce (ICC) 2022 Trade Register found credit risk in trade, supply chain and export finance has fallen back to pre-pandemic levels.

Default rates across all trade finance asset classes dropped in 2021 compared to the previous year, and export finance default rates in 2021 were the second lowest in the history of the register, GTR reports.

International goods trade flows recovered last year reaching $20.8tn, up 22% from 2020 and exceeding 2019 levels.