The crisis between Russia and Ukraine, broader geopolitical repercussions, and ongoing COVID-19 lockdowns in China have made an already dire position in the global supply chain shortages much worse.
The current sanctions on Russia and the prospect of more sanctions continue to affect gasoline prices, adding to the overall supply chain issue.
While there is little direct exposure of freight markets to Russia and Ukraine, there are a growing number of risk factors that global logistics will need to manage, such as airspace restrictions, uncertainty about the direction of consumer demand, and ongoing bottlenecks caused by China’s COVID-19 response.
J.P. Morgan Research investigates the causes of supply chain shortages and what would need to be done to fix them. It also anticipates probable future shortages and investigates the industries that will be affected.
Production and logistics
Because facilities, ports, and transportation capacity are costly, they are built to operate at high utilization. That indicates that they don’t have much surplus capacity. As a result, production and distribution are more cost-effective when operating at or near capacity, but this also implies that it doesn’t take much to overload them.
It becomes challenging to restore supply and demand to equilibrium since this is occurring across the supply chain rather than just at one point. When that occurs, the whole supply chain shortages must be evaluated, and any possible bottlenecks must be removed.
Ports may appear to need to discharge goods more quickly if there is a long queue of cargo ships. But, he claimed, ports do not have a location for the unloading of that many containers.
There aren’t enough chassis to move the products since so many chassis are storing items waiting to be loaded into cargo ships. If you extend storage space for additional containers, you’ll need more vehicles to move the goods swiftly.
It is an extended, iterative procedure. Once one bottleneck is solved, another one is instantly revealed. All parties involved in this process must work together, take their time, and conduct meticulous analysis.
Concerns about the economy’s structure
While Covid and Brexit both played a part in supply chain shortages, they also brought to light persistent structural issues with the labor supply in particular industries. 60,000 HGV drivers were lacking, according to the Road Haulage Association, even before the epidemic.
The problem is made worse by demographic factors: the average age of an HGV driver is 55, and just 1% of them are under 25. A large number of drivers are approaching retirement age, and there aren’t enough new drivers entering the market to take their place. The issue may also be exacerbated by historically low pay in specific industries.
According to The Financial Times, the average UK lorry driver made 51% more per hour than the typical grocery cashier in 2010. Recent modifications to the IR35 tax code have also eliminated a loophole that lets certain drivers, typically agency drivers, work “off-payroll” and therefore pay less tax, partially offsetting the effect of decreased salaries.
Poor working circumstances can also be encountered in supply chain shortages since drivers sometimes must put in lengthy shifts, keep odd hours, and travel far from home. The job is unpleasant due to the poor and overpriced roadside amenities and the scarcity of overnight parking spots.
Due to these problems, a trend anticipated to continue involves many HGV drivers choosing to work as distribution drivers for online shops. Similar issues have been noted in the meat processing sector for some time, where rather unpleasant working conditions and wage competition from employment sectors.