Covid-19 threatens global supply chains

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BUSINESS economic continuity and growth,” is now a fallacy, post Covid-19 in most global industries especially in developing nations.

This is demonstrated with an increased level of company closure, labour retrenchment and an increase in cost of living of household incomes depreciating tremendously.

Revenue and life were lost leading to negative production. It became so difficult for most productive avenues to resuscitate to fully operate at their optimum levels. The supply chain fraternity lost members and it is going to be difficult to recover from this tragedy.

Some organisations are exploiting markets during this interlude and some are finding it difficult to turnaround their operations to the extent of retrenching and shutting down operations. Massive losses were experienced during the Covid-19 and it will take time to recover.

All the previous two phases had their own levels of economic destruction, the third wave, the omicron clearly influencing negatively on production. Work place rationalising, timed productive hours, have affected most organisations especially in Zimbabwe. Unemployment is at its peak in some developing nations during this period.

In Zimbabwe, we generate a lot of revenue from the tourism sector. This industry is one of those affected highly with the emerging of the deadly coronavirus on the global arena. Massive recruitment in Europe is seen post-Covid-19 in order to replenish the lost labour force.

Labour demands on the global market is on the rise to those nations with production partially affected, unlike in Zimbabwe we suffered a lot and more unemployment due to Covid-19. However, some nations found it as an opportunity to boost their economies and claim more global market share.

Like China (Wuhan), as the root source of this novel coronavirus, it is gaining more mileage on the global market to be a global economic power hub. A lot of business disruptions are happening in the global supply chain post-Covid-19 and to some it is actually giving them a competitive edge on the global market place.

1. Ships from China have an increased lead time resulting in stock outs especially in heavy industry. This have raised a lot of questions from the international arena, why the delay? Global shipping had more delays than normal even before the Suez Canal blockage. The real challenge emanated primarily from: China’s increasing exports market. The Chinese are exporting more because of their quick recovery from the pandemic and a tighter control on borders.

It was easy for them to quickly recover as Shangai, where most of their productive avenues are situated experienced no or less of the effects of the novel corona virus. Unlike developing nations, it will take longer to resuscitate their production.

This gave China a chance to boost its production while other countries’ industry strives to maintain or increase capacity due to continuous lockdowns. The net effect is more and more exports from China coupled with little appetite for imports. So, containers will be going back to China in small numbers leaving a high demand for containers in China for exports.

Most of the containers are piling up in Europe and North American ports. Such a shortage has led to an increase in container price and ultimately shipping costs. Most sources indicate that shipping costs increased by a margin of 4 to 7 times over the last 18 months.

Congested ports

Most ports have experienced congestion as a result of the pandemic. The congestion was primarily caused by reduced workforce in ports to minimise the spreading of Covid

19. Some major ports were temporarily closed thereby further fuelling chaos.

2. An increase in logistical costs is experienced by most economies like Zimbabwe, facing the direct wraith of this corona virus.

Due to shipping costs raising the landing costs also rises as a result. A persistent increase in shipping costs then eventually affects the entire industry. Cost of living for many families facing live heat from the desert sun. The effects can be felt gradually over time. However, for net importing economies the effects have more impact on national inflation.

3. Shortage in industrial supplies and equipment. Shipping delays have been reported by various sources to have doubled since the beginning of the Covid-19 pandemic. Such delays created a major disequilibrium between supply and demand then prices increase to match demand.

4. China put a new law recently which protects data privacy that’s why if you are chasing a ship which has docked or has entered Chinese territorial waters you may not get a proper update. You only get suppositions hence inefficiencies of logistical information systems. Some experts say when a ship docks it’s hard to use satellite for tracking it. It is efficient to simply exchange data.

Advise to supply chain professionals

The current shipping challenges hinges primarily on supply chain professionals since reversing the current trends can take time. The following are possible solutions that can aid in giving our organisations a competitive edge:

An organisation can increase its safety inventory to guide against price increase and possible shortages due to delays in shipping.

A strategy that has dual effect on both inventories holding and net cash flows. However, this wouldn’t have an influence on marginal cost of production in Zimbabwe.

Order same quantities to manage minimise cash out flows, but place orders well in advance taking into consideration the new global lead time. This will work well if the company is getting goods on account. This minimises cash outflows, but increases liabilities which one should settle in future. So, this works well if sales and cash inflows are stable in the foreseeable future.

Manage Covid-19 very well at your workplaces otherwise the global shipping challenge would become a company-based problem. Over and above the Government and World Health Organisation guidelines the company should put additional measures to contain Covid-19. The effort is worth it.

This pandemic has given firms an opportunity to clearly amend their way of operations. Some were caught of guard and crying for survival, and some couldn’t manage to balance off the equilibriums. All sectors were affected even churches couldn’t even manage to gather for praying.