Supply Chain Risks Likely to Continue

S&P Global recently released a report titled “Look Forward: A World in Disruption.” The report details all the risks to the global economy and supply chain.

The world is in more debt than ever before with the total estimated at $300 trillion or $37,500 for every person in the world compared to GDP per person of $12,000. The low interest rate environment encouraged many companies to leverage instead of raising equity. Rising rates and a slower global economy mean high leverage comes with greater risk.

Uncertain supply chains mean a greater risk of delay with companies hedging their bets by increasing inventory. Many retailers are overstocked. Higher inventories are the consequence of aggressive purchasing during COVID-19.

In the future, supply chain risk comes from multiple directions. Rising tensions caused by Russia’s invasion of Ukraine – or maybe you believe Russian Foreign Minister Lavrov’s claim Ukraine attacked Russia – either way. China’s aggressive posturing towards Taiwan. S&P Global estimates 40% of US containerized shipments originate from mainland China. That concentration highlights what could happen if China experiences another lockdown. New weather patterns are increasing the frequency of severe weather which disrupts shipping.

Despite predicted growth in containerized shipping, the US is not increasing additional capacity. Organized labor opposes cargo handling automation so there are limited options to increase current productivity. Attempts to launch round-the-clock port operations have had minimal success.

Productivity at North American container ports actually decreased from Q2 2020 to Q3 2022. In early 2020, ports were moving approximately 56 containers per hour a ship was in port. By late 2022, that number had dropped to 30 containers per hour – close to a 50% decline.

If you would like a deep dive into the subject of supply chain risks and disruptions click here for the complete report.