As we gear up for the presidential election and debate the future of the economy, keep supply chains in mind.
For many, Independence Day is about fireworks. But have you ever thought about the supply chain for fireworks?
Our favorite festive explosives require many raw products, such as aluminum, barium, iron and a range of minerals that must be mined. Many are produced in China and arrive from Chinese warehouses on large cargo containers, fanning out to U.S. suppliers to supplement those made in America.
Fortunately, this year there are enough fireworks to light up American skies. But like everything else, a blip in the supply chain could ruin the evening.
The truth is that any product consumers want remains subject to continued supply chain problems, even long after the pandemic. Shoppers, shippers and retailers are gearing up for what could be a difficult fall and Christmas holiday season if the problems plaguing supply chains do not improve.
Manufacturing, warehousing and storage are key parts of how goods move after production. COVID created nightmares for supply chains. During and after the pandemic, goods sat idle on ships, factories were down, workers sick — a host of problems led to shortages of everything from toilet paper to car parts. Economic surveys show that the pandemic affected nearly 97 percent of all industrial products.
Now, four years later, we are facing a new supply chain problem, brought about by factors old and new.
The World Shipping Council, which tracks container traffic, says that “spot” rates reflect the daily pressures on shippers, who are charging more for freight.
According to data from the Drewry World Container Index, which analyzes shipping around the world, the price to ship a 40-foot container from Asia to Europe has risen from approximately $1,200 to nearly $6,000. From Shanghai to Rotterdam, rates have increased 11 percent over the year to date.
One reason is the war in the Middle East. It is bad for business. In the Red Sea, Houthi rebels continue to harass ships, slowing down their movement.
Drewry shows that “carriers have added many ships to their East-West services to compensate for the longer routes” now used by nearly all the companies that have avoided the Red Sea danger.
Recent catastrophes such as the closure of Baltimore’s port after the Francis Scott Key bridge collapse have affected the movement of products as well.
Climate change also plays a role. Intense heat has led to drought in regions such as Central America, creating a bottleneck in the Panama Canal. This puts pressures on all modes of transiting goods, including ships, rails and trucks. Crop failures can disrupt minerals and raw materials.
Hacking is an additional new challenge to supply chains, especially from China. Some companies are stocking up on inventory in anticipation of more supply chain problems from cyberthreats.
On the positive side, artificial intelligence is one new strategy, using real-time data to get ahead of supply chain management, along with diversification of vendors and protections against cyber-intrusions. Advanced analytics provide predictive capabilities to get ahead of supply chain troubles.
Supply chains also rely on human capital, which means people must work in manufacturing. The U.S. needs to keep up with training workers, and make it attractive to work on production lines to maintain market strength.
Many big companies, eager to rely less on China, are looking to India as an alternative manufacturing hub, given its enormous population and raw materials.
As we gear up for the presidential election and debate the future of the economy, keep supply chains in mind and how governments and private companies manage growing demands for goods in a world of turmoil. Preparedness is key to American success.
Tara D. Sonenshine is senior nonresident fellow at the Fletcher School of Law and Diplomacy at Tufts University.
