Supply chain woes: Will they last?

These are difficult times for the people who manage the supply chains that link factories in China to customers in the United States via ports, container ships, trains, trucks and warehouses.

After nearly two years of backlogs that have caused delays, shortages and higher prices, some supply lines are showing signs of easing. Whether that progress will last, though, is hardly assured.

Coronavirus outbreaks could force more lockdowns, especially in China, which enforces a draconian zero-COVID policy. Russia’s invasion of Ukraine has disrupted grain and energy commerce. The economic outlook has been clouded by the Federal Reserve’s series of interest rate hikes to try to slow growth and tame inflation. Other central banks are also moving to tighten credit.

The Associated Press spoke about the challenges with Bindiya Vakil, CEO of the supply chain consultancy Resilinc.

Are supply chain pressures easing?

It’s really hard to say right now, given that demand has not really slowed down. Last year, we were still dealing with COVID. Then you added the Russia-Ukraine turbulence. Then you added Shanghai’s zero COVID. All these things are really affecting the supply chain, and nothing seems to be resolving itself. Russia-Ukraine—it’s now in the fourth month.

What is the impact of China’s lockdowns in Shanghai?

Ships can’t get in. Raw material isn’t getting into factories in China from the port of Shanghai. This is why this is such a huge crisis. Usually, factories have anywhere from six weeks to 12 weeks of inventory. This was an eight-week lockdown. We’re going to have these delays for months now — getting those raw materials processed, unloaded, through the port and then shipped back out. That entire supply chain takes months to normalize. So that two-month lockdown was a huge disruption, and the impact will be felt for 18 months.

Do you worry that the supply chain bottlenecks will eventually be resolved the hard way — by a sudden drop in demand as the economy slows?

We have to worry now. Demand is strong, but it is weakening. Companies are sitting on a lot of inventory. They went out and panic-bought and filled up warehouses. A lot of the key players in the high-tech and other supply chains are really concerned: How much of this demand is real? A drop in orders means that companies built up all these inventories that they’re not selling. Which means potential bankruptcy, especially with interest rates going up. Now is the time to work closely with those suppliers that are financially not so robust. You can’t do it after they are already going through bankruptcy. What if somebody goes bust when you aren’t watching, and they’re the only supplier that you have for a critical product?