These are challenging times for global supply chains. The impact of the pandemic may be fading, but importers and supply chain planners planning for 2023 are amid enormous uncertainty and threats, as well as rising costs on multiple fronts.
What іs the trouble?
American importers remain heavily dependent on Chinese manufacturers, and relations between the two countries deteriorate. The super-economic model of just-in-time inventory may never recover. The outlook for future fuel costs is ominous. PartnerTrade finds and shares information in this article to learn more about these issues.
A geopolitical threat to Chinese supply chains
US importers have talked for years about diversifying their supply chains outside China. However, during the pandemic, American importers became even more dependent on Chinese manufacturers because they had functioning supply chains that could pivot to meet rising demand faster than any other supply location in the world. Therefore, it would be a bright idea to diversify the supply and not depend only on China.
At the same time, even as companies have become more dependent on China during the pandemic, they still say they need to find alternative sources outside China. In some cases, it is challenging. But companies with great resources and experience are trying to do it.
It started in 2022. This year underscored that it would be unwise to depend on stable, low-cost supplies from China, given what could happen geopolitically. And this year has added urgency and focus to that strategy — at a minimum, companies need to diversify their supply chains, even if they’re not going to abandon China entirely.
Failure risks equate to higher inventory costs
We emerged from the pandemic era when supply chains were getting back into chaos. The concept of “just-in-time” has been thrown away. Now we have “just-in-case,” which entails higher inventory costs.
Because of all the supply chain issues during the pandemic, people have been shipping and warehousing complete orders to minimize the risk of disruptions and having to discount those items if the demand will not occur properly.
Supply chains face higher fuel costs
There is another critical cost factor — fuel. In addition, there is also extreme underinvestment in tanker capacity, which is likely to be very painful for shippers. There is also geopolitical risk for manufacturers.
The energy transition is ongoing, but it is a decades-long process. There are so many bottlenecks that it makes you think that this vision will not be as flawless and effortless.
Inflation and uncertainty are ahead
Taken together, we have higher costs due to the need to diversify supply chains and insure against geopolitical risks. This risk in China is reminiscent of a low probability, high-impact chance. We also have potentially less efficient supply chains in global trade. Therefore, costs will be higher to protect the supply chain from disruptions. All this is similar to the sources of systemic inflation.
In the meantime, government representatives, logistics operators, transporters, and importers are looking for optimal solutions to protect supply chain participants.
PartnerTrade is also looking for new ways to ship goods to different parts of the world. Our managers plan routes, find carriers, agents, and customs brokers, and do everything to ensure that your orders arrive successfully at the specified time and city.
During the pandemic, Chinese manufacturers had functioning supply chains that could pivot to meet rising demand faster.
The lack of inventory has created such a situation that now you have to think about “just in case” to ship the goods on time to the buyer, which requires additional costs.