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COVID-19’s ensuing national lockdowns and Russia’s invasion of Ukraine have driven industry stakeholders to ensure robust global supply chains in the face of global disruptions, Marine Traffic reports
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Business and international policymakers are now rethinking their operations and linking up via diversification with economies that can withstand future shocks
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By using multiple suppliers, transport modes, and routes rather than relying on one, companies will have a fallback during unexpected events
Companies are scrambling to diversify their logistics networks to boost supply chains vs disruption after decades of an uninterrupted march towards further globalization and economic integration had seen efficient global operations being taken for granted, Marine Traffic says in its latest newsletter.
The report said cutting production costs had been manageable for decades as firms simply outsourced manufacturing to developing countries that drew foreign investment as low-tax, low-regulation havens. However, COVID-19 and ensuing national lockdowns, as well as Russia’s invasion of Ukraine, have prompted industry stakeholders to ensure robust global supply chains in the face of global disruptions.
The newsletter said unprecedented events exposed the vulnerability of global commerce, forcing business and international policymakers to rethink their operations and link up – through diversification – with economies that can withstand future unpredictable fluctuations.
Marine Traffic said diversification is among the most popular strategies to make global supply chains more robust – more specifically, using multiple suppliers, transport modes, and routes rather than relying on one. Acquiring alternatives as a fallback during a disruption or unexpected event allows companies to reduce their dependence on a single supplier or global pathway.
Rather than shipping car parts end-to-end solely from China via Shanghai, producing them in other Asian countries such as Vietnam, Malaysia, or Indonesia, allows firms to bypass China during disruptions there, such as during the COVID lockdowns. This strategy is the new norm for international firms, especially in shipping and logistics.
One example is supply chain leaders in semiconductor logistics. Most microchips that make technology functional are made in Asia. Taiwan makes over 60% of the world’s microchips and over 90% of the most advanced ones. Most of these are made by Taiwan Semiconductor Manufacturing Corp. (TSMC).
Having the world’s technology reliant on one corporation within a disputed territory with weather-related problems has been a major procurement issue, driving lawmakers around the world to look to localizing chip manufacturing and diversifying their semiconductor supply chains.
Marine Traffic said the main benefit from value chain diversification is a significant reduction of risk. By proliferating across multiple suppliers, transport modes, and routes, companies can reduce their reliance when failure occurs to avoid blocking the entire system.
Minimizing vulnerabilities is usurping short-term profit maximization now that disruption is considered a given in an increasingly unpredictable global context, Marine Traffic said. Businesses have sought to expand partnerships with multiple suppliers in different regions, establish regional distribution centres, and explore alternative methods.
Drifting away from a single supply point for sourcing also means the potential for better quality control. More options mean companies can be more judicious regarding their suppliers and standards. If a firm is seeking customer satisfaction by reducing the risk of recalls or returns, diversification is the logical aim.
The report, however, pointed out some drawbacks of diversification:
- Inevitable increase in complexity and management to deal with multiple suppliers, supply networks, and transport routes makes coordinating and aligning operations across diverse networks entail higher administrative costs.
- Dealing with new partners creates potential communication internal and external issues.
- Managing multiple suppliers, transport modes, and routes can be cumbersome as personnel and infrastructure expansion requires more resources, expertise, coordination and communication.
- Holding raw materials in various locations to mitigate supply chain disruptions can put strains on capital and increase carrying costs.
Despite economies of scale initially driving globalized supply chains, diversification to boost supply chains vs disruption can lead to higher costs in the long term. Marine Traffic says having access to multiple supplier networks allows companies to determine the most cost-effective option.
Transparency and more choice mean they can find every opportunity to lower transport expenses, keep production low-cost, and increase efficiency.
Diversifying to boost supply chains vs disruption can encourage higher levels of quality, but as the network grows the more challenging it can be to manage. As a result of conscious expansion, a company working with multiple partners can have a depreciating impact on its sole control over the supply chain.
Part of diversifying economic networks and trade routes inevitably requires improvements in visibility. Container tracking solutions, like MarineTraffic Visibility for Containers, can help companies to monitor and manage their supply chains more effectively. Using supply chain visibility solutions can identify potential issues and bottlenecks in the supply chains and offer proactive measures to address them.
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