Supply Chain Crisis

The present global supply chain is complex in nature being built up over the years after the second world war.  It has been simultaneously strained at all nodes in the last 2 years due to global forcible lockdowns. Usually some nodes may be disrupted due to natural disasters such as earthquake hitting a major city or regional wars affecting energy and commodity supplies, but the supply chain can self regulate to compensate for this loss with supply from other nodes.  But this time, the whole world went into lockdown and disrupted all nodes.  The sudden lockdown, subsequent easing of restrictions and the return back to restrictions to contain different waves of the virus variants further compounded the crisis.

Covid 19 has disrupted the demand and supply at all nodes.  And also distorted demand and supply.  Distortion affects demand and supply of final products at the onset while disruption affects the demand and supply of the supply chain nodes that go into producing the final product.  People, who normally go to movies and eat out, will stay home instead and spend on goods instead of services as a result of the global lockdown.  This is an example of a forcible distortion. Manufacturing and logistical systems are designed to run at high utilization and they are now forcibly disrupted too. In this unprecedented pandemic control, all the three abovementioned factors come together to create this perfect storm of global supply chain crisis.

To compound the current problems are the looming sovereign debt crisis of emerging economies which represent more than half of the nations of the world, inflation caused by all kinds of monetary stimuli from quantitative easing, and the Russia-Ukraine war disrupting a great proportion of global gas and fertilizer supplies.  I foresee the supply chain problem to drag on for years and many nations will be unstable. It is the rate of inflation that is frightening for we do not know how quickly inflation will go up and further distort or disrupt the supply and demand.

Postscript : 29 Nov 2022

Glad to find a video of a famous economist, Jim Rickards, explaining so well about the current supply chain disruption.

Comments are closed.