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Supply chains around the world are currently overwhelmed by a combination of many factors, and this situation will likely continue during 2022. E-commerce has been on the rise, and more people are now purchasing products from overseas. However, this trend has also added pressure to the shipping and transportation industry. Normally, a solution would have been to simply increase the delivery capacity, but 2020 and 2021 have been anything but normal.
According to a study by FM Global, an mutual insurance company with corporate clients around the world, the current supply chain crisis is caused by six main factors:
- The COVID-19 pandemic
- Cybersecurity risks
- Port backlogs
- Truck driver shortage
- Major floods in many parts of the world
- Chip shortage
These six factors have two things in common: they all affect a wide range of industries, and their impact is global. Here we will discuss how these factors have added up, causing the current supply chain crisis.
COVID-19: Higher Demand, Less Supply
Many restrictions have already been lifted, but the COVID-19 pandemic forced a large part of the population to stay at home for months. Many customers who were skeptical about e-commerce platforms started using them, increasing the demand for products from remote locations. However, this happened exactly when there was less manpower available to keep the supply chain moving. COVID-19 has also increased the demand for specific products, including masks and other biosecurity equipment. With higher demand and reduced supply, the results are scarcity and higher prices.
Cybersecurity Risks in Supply Chains
With the rise of e-commerce and digitalization in general, many companies have been under pressure to expand their online operations. However, an increased Internet exposure also makes them a more attractive target for cybercriminals. Since many companies have been forced to go online in a very short time, it’s easy to overlook the cracks in the system.
The Colonial Pipeline hack in May 2021 was a clear example of this: the pipeline provides around 45% of gasoline for the US East Coast, and it was taken offline for more than three days. All started with a compromised password, which fell into the hands of hackers through the dark web.
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Port Backlogs and Truck Driver Shortage
These two supply chain issues are closely related, and they have a compounded effect. With less commercial drivers available, containers accumulate on ports and there is less space to unload incoming vessels. In other words, supply chains are dealing with two bottlenecks in a row when products are unloaded from a cargo ship.
- Late in 2021, Goldman Sachs estimated that ships waiting for their turn to dock and unload in California’s ports were holding $24 billion in products.
- The US currently has a shortagePhoto by Barrett Ward on Unsplash of 80,000 commercial truck drivers.
According to FM Global, high shipping costs could continue well beyond the first half of 2022. With respect to the shortage of truck drivers, a proposed solution is lowering the minimum age for interstate truck driving.
Major investments in US port infrastructure have been announced recently. These include grant funding from the US Marine Administration PIDP, and multi-billion investments through the Bipartisan Infrastructure Law.
Major Floods in Europe and Asia
The floods that affected Europe and Asia in 2021 were devastating for many communities, but they also affected railways and major industrial zones in both continents. In Europe, the floods affected key railways leading to the ports of Rotterdam and Hamburg. The steel, automotive and home appliance industries were among the most affected. On the other hand, the floods in China were particularly severe in the Henan province, which is a key source of wheat and coal for the country.
Chip Shortage: Supply Chain Disruption in Many Industries
With more people working from home and the growth of e-commerce during the pandemic, the demand for electronic devices increased suddenly. Unfortunately, the resulting chip shortage is affecting many industries. Some products that depend on chips include cars, gaming consoles, smartphones, and even medical devices. According to FM Global, the chip shortage will extend through 2022 and possibly until 2023. The chip shortage has also left many companies with less options to deal with the supply chain crisis, since many possible solutions depend on technology.
