Why skippers don’t get thrown | The economist


mUCH FROM THE Most people often don’t think about the complex choreography that modern shopping makes possible. You just click and wait – and not too long – for one or three parcels to arrive at your doorstep. In recent months, however, the world’s supply chains have come to the fore as rising demand for goods and supply disruptions have restricted the flow of trade. In ports around the world, dozens of ships piled high with containers wait at anchor for their turn to unload as the cost of shipping a box from China to the American west coast rises above the level ahead the pandemic have increased tenfold.

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You may think that the Snafus is the beginning of the end of globalization. Consumers are learning how infections in half a world or a ship stuck in the Suez Canal can disrupt almost instant access to goods they take for granted. Manufacturers are discovering that lean supply chains can mean inadequate access to essential components and low costs. The disruptions are one of the reasons behind the high inflation in America, the UK and elsewhere. But in the midst of the logistics blues, the markets function as they are used to, and companies are finding ways around blockades. Indeed, under heavy pressure, global supply chains do not fail; rather, they adapt.

The problems started in 2020 when companies that had shut down production in anticipation of a slump saw strong demand for cars, electronics, and exercise bikes instead. Generous incentives, particularly in America, kept order books full as the pandemic skewed spending on goods, not services. Computer chip manufacturers have not been able to keep up with the onslaught. The shipping industry had no spare capacity and was faced with a number of disruptions, from the saga of the stalled ship Always given, to the closure of ports in the event of Covid-19 outbreaks and storms such as Hurricane Ida. If the system is thinly stretched, a mishap will affect the movement of goods everywhere. Experts believe it could take a year or more for conditions to return to normal.

In the meantime, companies are not turning their thumbs or giving up global supply chains. Instead, they improvise. Some retailers, like Walmart, have made it their business to charter entire ships solely for their own cargo. Passenger planes are being converted for cargo. Chip manufacturers weigh their priorities: TSMC, from Taiwan, for example, supplies some automakers and Apple in front of computer server manufacturers. Increasing shipping costs themselves help to adjust the flow of goods. Higher freight costs hardly affect the price of expensive electronics that can be stuffed into containers, but rather count for bulky, low-value goods such as garden furniture. Some consumers may be disappointed, but that means shipping clutter detracts less from the value of the trade than it otherwise would.

The stresses on supply chains will leave their mark. This year investments will be exceptional – global investments are expected to be 15% above pre-pandemic levels by the end of 2021, Bank Morgan Stanley estimates. Companies are aware of the risk of shipping disruptions and trade disputes and adapt their investment programs accordingly. In countries like America and Japan, government policies encouraged them to incentivize “reshoring” production. Toshiba, a Japanese electronics company, closes a long-standing factory in China. A number of automakers are bringing parts of their supply chains in-house, or at least closer, especially when it comes to chips. New orders for smaller container ships can reflect the assessment of a stronger regionalization of production.

Ship shape

Global supply chains will survive this test. In fact, the adjustments and investments made in response to the recent problems will likely make them better able to cope with faults, for example by ensuring adequate supplies of critical components. That should eventually enable them to get out of sight and out of mind.

This article appeared in the Leaders section of the print version under the heading “Why Skippers Don’t Get Dumped”

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