An Everstream Analytics report provides supply chain risk factors and mitigation recommendations for 2022. Risks include water instability, ocean freight issues, and increasingly stringent government regulations. Risks appear starker in light of China’s zero-Covid-policy-induced supply chain disruptions.
Jan. 17, 2022: Everstream Analytics, a California, the U.S.-based supply chain risk analytics provider released the Everstream 2022 Risk Report this week, which outlined the top five supply chain risks likely to be encountered by global companies in the next 12 months.
According to the company, it monitors up to 1,500 potential supply chain disruptions every day, then uses artificial intelligence and expert analysis to identify patterns, understand context, and make accurate predictions that are meaningful to each customer network. Everstream Analytics risk scores and predictive insights set the world’s supply chain standard, helping global companies turn supply chains into business-changing assets.
“Pandemic shortages have revealed the global supply chain’s fragile interdependence, pushing companies in every industry toward comprehensive risk assessments and flexible response plans… We developed the Everstream 2022 Risk Report to provide advice and commentary on where to double down on risk mitigation efforts to keep supply chains stable.”Julie Gerdeman, Chief Executive Officer, Everstream Analytics.
Below is a quick summary of the Top 5 Supply Chain Risks for 2022.
- Worldwide Water Instability: The report cautioned that two-thirds of the global population will face water shortages by 2025. A steady water supply is necessary for production and cooling equipment for pharmaceuticals, tech products, paper, garments, food processing, and other manufacturing industries. “Cargo transportation on inland waterways is particularly exposed to these risks, causing intermittent disruptions to barge traffic due to stark changes in water levels. Key waterways such as the Parana River in South America or the Rhine River in Europe have experienced record low water levels in the past few years, affecting the inbound and outbound transportation of both raw materials and finished goods,” the report highlighted. Adding that this period could see more stringent government regulations, it said: “Companies will be mandated to start adopting water conservation measures like installing water-saving technology or mandated water resource management. Recent water consumption regulations in key areas along the Yangtze River in China, for example, have highlighted the growing impact for industrial manufacturers. More such restrictions are likely to be passed due to growing water scarcity.
- Ocean Freight Bottlenecks: Facing record low-inventory levels, strong consumer demand, and ongoing COVID-19 impacts on logistics and workforces, the global ocean cargo industry will continue to suffer from port congestion and delays in 2022, said the report. It warned that the “ongoing pandemic outbreaks will continue to impact operations, leading to temporary closures of terminals or entire ports and causing longer waiting times for vessels.” An example of these measures was the May 2020 shutdown of the Yantian International which led waiting times to spike from 0.5 days to 16 days. Persistently high imports, coupled with acute labor shortages, will continue to stress yard utilization and lead to delays, the report added.
- The Continuously Changing Workplace: As the Omicron variant of COVID-19 spreads across the world, the risk of infection will force companies to reassess how workplace safety and worker compensation to avoid the risk of long-term disruptions from industrial actions or outbreaks of disease. Underling the recent trend of “The Great Resignation” it said that as risks mount in high-exposure work environments, workers increasingly demand changes. Strike actions have increased in health care, logistics, food, and manufacturing sectors, disrupting operations in places that had not seen labor actions in decades. For example, workers at Hankook Tire and Technology used strike actions for wage settlement in 2021 for the first time in 59 years. Per the analysis, the threat of strikes will continue to hang over labor negotiations in 2022, and unions should be expected to press for improved working conditions in any sectors that have been criticized over security concerns and low pay structures.
- Just-in-Time Shifts to Just-in Case: As the pandemic exposed flaws in “just in time” inventory systems, businesses have been exploring a shift to the “just in case” model, increasing buffer and safety stocks of critical components or best-selling products, said the report. It pointed out that according to the U.S. Department of Commerce, total business inventories have increased by 7.8 percent in October 2021 compared to the same month in 2020. “Throughout 2021, businesses from machinery makers to drink manufacturers said they were likely to increase safety stocks of critical components to protect against special-cause variation in demand during extreme weather, supplier failures, or a black-swan event. “Given the ongoing uncertainty, multinational companies will change how they manage inventory, potentially by decentralizing stocks to place them closer to customers, providing localized stockpiles to use up during supply chain disruptions,” it reported.
- Increased Regulatory Scrutiny: Sustainability disclosure and reporting requirements for businesses continue to gain momentum amid scrutiny from governments, investors, and customers alike. The report forecasted that further regulations impacting global supply chains will likely be enacted in 2022. “While reputational risks continue to be a key incentive and driver for ESG performance, there is now a general trend towards legal action against such concerns, turning sustainability into a material business risk.” For example, both Norway and Germany have already passed supply chain laws on human rights due diligence, holding companies accountable for violations, including those taking place at the supplier level. More countries and trading blocks are likely to follow suit.
The full report can be downloaded from here.
China’s anti-Covid measures add to the risk
The aforementioned risks highlighted by Everstream Analytics appear even starker in light of recent supply chain disruptions caused by ongoing events in a region that supplies the world with a third of its manufacturing output. China has dealt with the pandemic with an iron-handed approach since the beginning, imposing a strict zero-Covid policy. Fresh restrictions imposed in recent weeks, meant to ward off the Omicron variant – particularly in areas that house factories and port cities – have manufacturers bracing for prolonged supply disruptions. Not only are they causing increased wait times and shortages of truckers and warehouses at China’s port cities, but they are also pushing up raw material prices in industries around the world.
Katrina Ell, a senior economist for Asia-Pacific at Moody’s Analytics told CNBC’s “Squawk Box Asia” last week that that China’s zero-Covid policy could deal another blow to global supply chains.
China’s zero-Covid policy “really does increase the downside risks for material improvement in supply chains,” said Ms. Ell, noting that there will be “important ramifications for inflation and also central bank policy-making in the next couple of months.”
Companies that have been impacted by China’s recent restrictions include Samsung Electronics Co., German auto maker Volkswagen AG and a textiles company that supplies Nike Inc. and Adidas AG, reported The Wall Street Journal.
- By SCM-Log Staff