PMV Middle East
IT’S A WAITING GAME
It’s safe to assume that supply chain disruptions are here to stay, at least until 2023. The latest threat in the series of global disruptions including the pandemic, shipping delays, China lockdowns and Russia-ukraine war, is rising prices and inflation.
The group chairman and CEO of DP World Sultan Ahmed bin Sulayem recently pointed out that rising freight rates, low production levels and the volatile social-economic situation in Europe “will keep inflation high in 2022.”Inflation in the US, for example, is at its highest point in nearly 40 years. According to Deloitte, the extent of supply chain disruptions is a critical uncertainty that is likely to impact the future of inflation. What makes it difficult to predict the most likely course for inflation in 12, 24, or 36 months is the interplay between the evolving pandemic, the varied responses of central banks around the world and their near-term impacts, the evolution of public perception, and the possibility of other, yet-unknown shocks.
Over 50% of 200 global forwarders, traders, and shippers expect this year’s peak shipping season to be even more chaotic for global supply chains than the same period in 2021, according to a recent survey conducted by Container xchange. The supply of cargo to
Europe and North America is being restricted by the Covid lockdowns in China; 58% of respondents in the Container xchange survey reported that these lockdowns have created severe cargo backlogs making it “hard to produce and ship as much product as planned.” If China decides to relax its zero Covid-19 rule and resume trade, there’ll be a substantial surge in shipments as backlogs are cleared, and if those backlogs arrive at the same time as peak season orders, they could cause further supply chain blockages at ports in Europe and the US where congestion is already widespread.
The survey respondents shared some of their container sourcing strategies: 56% said they have been growing networks, 38% had agreed to longterm contracts and 25% had followed a multi-tender strategy. 37.5% of respondents said they were ensuring clients received enough inventory by shipping early in 2022. 25% were using alternative shipment routes and 18.8% were contracting long-term slot agreements with carriers.
Another recent survey of 3,000 respondents commissioned by DP World in partnership with the Economist Impact research programme reveals how companies are changing their strategic outlook to cope with the pandemic and ease inflationary pressures: 48% said diversifying their supplier base is their primary reconfiguration strategy, with efforts focussed on sourcing raw materials (24%) and managing shipping lines and logistics (21%). The highest cited reason for optimism for global trade was the growth of technology to ease supply chain issues, particularly the adoption of 5G to increase connectivity.
The outlook is more positive among the Association of Equipment Manufacturers (AEM). The majority of AEM members believe a return to normal will happen within the next year or two. Although, semiconductor shortages have been especially hard on heavy equipment manufacturers, a great majority are confident that the market will continue to grow over the next 12 months.