Global Trade Faces Challenges Amidst Supply Chain Shocks

The interconnectedness of the global shipping network has been thrust into the spotlight in recent years due to a series of supply chain shocks. From the pandemic-induced increase in goods spending to the Suez Canal blockage caused by the stranded Ever Given ship and the recent Houthi rebel attacks in the Red Sea, these disruptions have forced businesses to rethink their stock-building patterns and adapt to the changing landscape of international trade.

Globalisation has been the driving force behind the production of tradable goods since the 1990s, with container ships carrying approximately 80 per cent of internationally traded goods. However, the march of globalisation has slowed in recent years as countries and companies turn inward, bringing supply chains closer to home and reducing their reliance on nations perceived as political or military threats.

The pandemic served as a particularly significant supply chain shock, with ports shutting down routinely to contain virus outbreaks and the Suez Canal blockage triggering a steep rise in freight costs. Recent tensions in the Middle East have made safe passage through the Red Sea nearly impossible, forcing vessels to divert around the Cape of Good Hope in southern Africa and elongating transit times.

In response to these challenges, retailers are attempting to secure stock earlier to mitigate the risk of shortages during peak seasons. This pre-emptive stockpiling approach has become a strategic necessity in today’s uncertain environment, as businesses that fail to plan ahead risk facing stockouts, especially during the critical holiday season.

However, this sudden burst in buying from retailers can actually exacerbate the very issues they are trying to avoid, leading to shortages and deepening delays and congestion across the global supply chain. The chief executive of AP Moller-Maersk, the world’s second-largest container shipping company, recently warned of the potential “bullwhip effect” caused by retailers ordering more than they need.

Political upheaval in countries like Bangladesh, a linchpin of the global garment industry, has also contributed to delays in clothing deliveries. Retailers are increasing their stock levels to de-risk the potential impact of expected disruptions in the country and to meet customer expectations across various channels.

The severe disruption experienced by two of the world’s busiest waterways – the Panama and Suez canals – in recent years illustrates the dangers of overreliance on a limited number of waterways. While these canals offer significant time savings, carriers can adjust and continue to deliver goods even without them, albeit with increased transit times.

Protectionist trade policies have also become more prevalent in recent years, with China often being the target of tariffs and trade barriers. Although these measures can protect industries and workers at risk of competition from overseas, they can also weaken demand by raising goods prices, leading to less trade overall.

As businesses navigate the challenges posed by supply chain shocks and the evolving landscape of global trade, adaptability and resilience will be key to success. Shippers may need to explore alternative routes and countries with lower trade barriers, while retailers must strike a balance between securing sufficient stock and avoiding the pitfalls of over-ordering. The complexion of the international shipping network is likely to change significantly in the years to come, shaped by the lessons learned from recent disruptions and the ongoing shifts in global trade dynamics.