April 22, 2024 / Blog

What to watch: Current events that may impact your supply chain

Frank Shultz

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Supply chain disruptions worldwide have occurred nearly continuously since the onset of the pandemic in 2020, leading to higher prices, shipment delays, and increasing third-party risks.

Although COVID-19 is beginning to seem like a distant bad memory, a variety of other factors are straining supply chains, and risk and resilience professionals should be mindful that things could get much worse.

Collapse of the Key Bridge

On March 26th, a container ship collided with the Francis Key Bridge in Baltimore – a tragedy that resulted in injuries and loss of life for workers on the bridge, and effectively closed the port.

This could have major consequences for domestic and international goods. Last year, the Port of Baltimore – one of the largest in the US – handled 52.3 million tons of foreign cargo. Its biggest imports included machinery and materials like iron, steel, aluminum, nickel, and wood. It is also one of the top ports in the nation for automobile shipments.

No timeline has been announced for how long it will take to reopen the shipping lane. But, it took nearly two weeks for salvage crews to begin taking the first step: freeing the ship from the mangled bridge. And while temporary channels have been established on either side of the wreckage, as of April 8th, only 32 vessels have passed through it.

Danger in the Red Sea

Since November 2023, Houthi rebels based in Yemen have been wreaking havoc in the Red Sea. Claiming retribution for the Israel-Hamas war, the group has been targeting (and sinking) ships using helicopters, missiles, and drones.

These attacks reduced traffic through the Suez Canal, the shortest maritime route between Asia and Europe through which 15% of global shipping volume passes. To mitigate the danger, many ships are now being diverted, which sometimes requires them to take the much longer path around the African continent in order to reach their destination. Some organizations are choosing to avoid the seas all together and are instead opting for more reliable, yet more expensive, air freight.

As a result, in just a few months, the number of transits through the Suez Canal has dropped nearly 40%.

The future for maritime shipping from Asia remains uncertain. While many new ships are expected to come online this year, increasing capacity, the Middle East is more of a tinderbox than ever and the risk of additional violence and disruptions remains high.

Uncertainty in Taiwan

Taiwan is – far and away – the world’s largest chip manufacturer. The country is home to 46% of the world’s semiconductor manufacturing capacity, including production of nearly all advanced chips.

This concentration of manufacturing of something so essential to the world economy is rife with risk.

Consider that a recent 7.4 magnitude earthquake temporarily halted production – and posed a significant threat to makers and sellers of smartphones, computers, cars, and other products that rely on advanced semiconductors.

But the risk this presented pales in comparison to the threat that China represents to Taiwan and the world’s semiconductor supply. American defense experts believe that Chinese President Xi Jinping sees a window to annex Taiwan – either peacefully or by force – by 2030.  Because Taiwan and its allies staunchly support its independence, force is the more likely scenario.

Depending on what this annexation looks like, the entire global economy could face consequences.

The global super election year

In 2024, nearly half of the world’s population will be heading to the polls in elections worldwide. The outcomes of these elections have far-reaching implications that will unfold for years to come, and almost certainly impact supply chains in the future. They also bring an elevated risk of civil unrest.

For example, as we highlighted in a recent report, the 2023 National Terrorism Advisory Bulletin issued by the DHS cautioned that “perceptions of the 2024 general election cycle and legislative or judicial decisions pertaining to sociopolitical issues” could “mobilize individuals to commit violence …”

Globally, of the 80 plus nations holding elections this year, citizens in 27 European Union countries will vote. In many of these, sharp divides between parties, charismatic candidates with extreme views, and tenuous economic climates are fueling social tensions.

Further, although socio-political events can trigger incidents that can severely impact an organization, planners must also consider that we live in an era of polycrisis.  Due to climate change, geopolitical risk, and other factors, if civil unrest emerges, there is a chance that it will happen concurrently with another incident, such as a weather event, cyber attack, forest fire, or public health emergency.  In short, companies no longer have the luxury of planning for and managing one incident at a time.

Given these dynamics, risk and resilience professionals need to pay careful attention to developments around the world and the potential implications on their businesses and key stakeholders.

A new approach

Supply chain disruptions are now so frequent and varied, companies must think beyond the traditional approaches to readiness. It is no longer enough to plan, and test for specific incidents – those may or may not be the most likely to occur and they may not occur individually.

Instead, we recommend companies adopt a crisis agnostic “all hazards” approach to resilience that empowers the team to respond to and recover from any disruption. If you cannot predict or prepare for every supply chain disruption, you must build a flexible, smart infrastructure that will allow you to respond to any type of incident.

If the past few years have taught us anything it is that supply chain disruptions will not only continue to occur, they may also become more intense. And the time to prepare is now.

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