2021 has been a challenging year for the global supply chain. While vaccines have done a great job of beating back COVID-19, many of the difficulties confronting global logistics have only come to fruition in the last year. In the midst of the year-end holiday season, we thought it would be a good opportunity to review some of the most serious events that had an impact on how we moved goods around the world in 2021.
1. COVID-19 Lockdowns
No one gets any points for guessing this one. The COVID-19 pandemic continues to be the most significant disruption to the global supply chain. The impact of the pandemic on the supply chain was felt almost immediately in early 2020, as the demand for personal protective equipment (PPE) for healthcare workers quickly outstripped supply. From that point, manufacturing shutdowns in facilities all over the world have been a regular occurrence, causing production chaos.
Shortages of everything from semiconductors to automobiles are having an impact on consumers around the world. Some of this is the result of global organizations relying on China as the single point of production for many products. When Chinese factories shut down during the pandemic, the shockwaves could be felt along the entire supply chain. While many organizations are starting to shore up their resilience by diversifying their supply chain sources, the rise of the Omicron variant suggests COVID-19 is far from finished wreaking havoc.
2. Labor Shortages
Labor shortages are having serious impacts in many regions, particularly North America, the EU and the UK.
As one might imagine, much of this is COVID-19 related, with high rates of worker absence due to illness. Much of it, however, is a self-inflicted wound. In the UK, a potent combination of Brexit nationalism and poor working conditions has resulted in a shortage of as many as 100,000 truck drivers. When Brexit immigration policies kicked in, many EU-born drivers left the UK to work in other countries in the EU. Many more UK drivers report having left the industry because of poor pay, unsafe working conditions and unrealistic delivery schedules.
In August, this shortage became so acute that fuel stations couldn’t take delivery of gas because there were no drivers available. Grocery stores also had empty shelves as labor shortages disrupted delivery schedules.
3. Shipping Disruption
Global shipping has been hit by a spectrum of problems. A worldwide shortage of shipping containers has pushed the price an importer will pay for them from $4,500 to about $20,000 each. As a result, importers prioritize small, expensive goods to maximize the limited space for which they’re paying such inflated prices.
Once the ships arrive at port in North America, a shortage of dock workers to unload them means ships are remaining at anchor for weeks at a time. At one point, more than 70 ships were anchored off the Port of Los Angeles, with a waiting time of about six weeks before they could be unloaded. While they wait at anchor, the ships and containers are unavailable to transport goods, creating massive delays for consumers.
Expanding to 24/7 operations at ports has been successful at alleviating some of this backlog, but many experts predict we will be well into 2022 before things return to stability.
4. Shifting Consumer Behavior
Pandemic lockdowns dramatically changed consumer behavior in different ways around the world. In North America, consumers shifted their buying practices from services they could no longer access to products they could have delivered to their door. This increased consumer demand is an ongoing and significant pressure on the supply chain.
In contrast, many European consumers not only cut back on their spending in general during the pandemic, but they also report being satisfied with their reduced spending and not missing the items they no longer purchased. According to research, 23 percent of French households don’t intend to return to regular hairdressing visits, while 21 percent of German households don’t miss eating out at restaurants. While North American consumer patterns threaten to overwhelm the supply chain, European consumer patterns are poised to starve it of the vital economic stimulus it desperately requires.
5. Suez Canal Blockage
The Suez Canal, a crucial shipping lane in Egypt that facilitates passage from Asia to Europe and North America, was blocked for six days in March. The Ever Given, one of the largest container ships in the world at 400 meters and 200,000 tonnes, drifted off course while passing through the canal and became lodged sideways, effectively cutting off all sea traffic.
During the course of six days, 369 ships were stuck outside the canal, preventing approximately $US9.6B in goods from meeting scheduled delivery. This led to significant knock-on delays for several critical items, including semiconductors, which impacted the global supply chain for several months after traffic had resumed.
6. Semiconductor Shortage
Integrated circuits, also known as semiconductors, are critical components of many electronic devices including cars, computers and mobile phones. As a result, global demand for them is extremely high. With Asia being the heart of semiconductor manufacturing, the COVID-19 lockdowns hit the semiconductor industry extremely hard.
The knock-on impact of this is a significant disruption of manufacturing for cars and electronics as the demand for semiconductors vastly outpaces production. While chip manufacturers have committed to expanding their operations to produce more chips, it takes time to build these facilities, with some not scheduled to begin production until 2024.
7. Uyghur Persecution in China
According to many sources, the Chinese government has been actively persecuting Muslim Uyghurs in the northwestern region of Xinjiang. Since 2017, several witnesses have testified that as many as a million people are detained in reeducation camps where they are tortured, interrogated and used as slave labor.
Xinjiang region is home to operations that produce a significant portion of the world’s cotton. According to a report from the Helena Kennedy Center for International Justice at Sheffield Hallam University in the UK, cotton produced by Uyghur slave labor from Xinjiang is exported to many international brands around the world.
In response, the United States has passed the Uyghur Forced Labor Prevention Act, which assumes that all products produced in Xinjiang are the result of slave labor and are therefore banned from the US supply chain. This will put a considerable burden on many American businesses that do not have adequate insight into their suppliers to know if the material they’ve sourced from China was produced in Xinjiang.
8. Texas Winter Storm
It doesn’t usually get very cold in Texas. However, on February 13, a massive storm brought severe winter weather to the American south, hitting the state of Texas particularly hard. Snow and ice brought the state to a standstill, as very little of the infrastructure is designed to be resilient in the face of such extreme weather. By the time it was over, more that 200 people had died and there was almost $200B in damages.
Austin and Dallas are important locations for manufacturing semiconductor chips, which was significantly impacted by the storm. Large amounts of freight shipping were also disrupted, while power shortages led to widespread blackouts.
9. British Columbia Flooding
British Columbia, Canada was hit by extreme flooding for several weeks in late autumn. This ongoing emergency has caused at least $450M in damage to homes and infrastructure, making it the most costly weather disaster in B.C. history.
British Columbia is a critical gateway for shipping to the rest of Canada and to the United States. When floods and mudslides destroyed roads and bridges throughout the province, there was significant supply chain disruption. Many commercial freight trucks from B.C. sat stranded, and there were fears of an energy shortage resulting from difficulties getting oil and gas into the province from Alberta. B.C. is still under a state of emergency, and this event promises just a small taste of likely future events impacted by global climate change.
10. Colonial Pipeline Cyber Attack
On May 6, 2021, a criminal organization likely based in Russia successfully initiated a ransomware attack against Colonial Pipeline, a pipeline in Texas that supplies gasoline and jet fuel to the east coast of the United States.
Hackers easily gained access to the network with a single password through a legacy VPN (Virtual Private Network) that did not have two-factor authentication. In response to the ransom demand for almost $5M and to prevent the attackers from gaining access to the rest of the operations network, Colonial shut down the pipeline, effectively turning off the fuel taps for a large segment of the United States. The threat of fuel shortages sent many people rushing to gas stations to fuel up.
In the end, Colonial paid the ransom to unlock their systems and resume operations. The ease with which attackers gained access to Colonial’s network provided the much-needed impetus for the Federal Government to issue an executive order on cyber security for critical infrastructure.
While a litany of catastrophes might seem like a grim way to end the year, we should instead think of it as an opportunity to learn and become resilient. The global supply chain has never been tested the way it has in the last year. Where there are weaknesses there are opportunities to become stronger and do better. As we head into 2020, there is no shortage of opportunities to understand our shortcomings and create a stronger logistics network for the future.
