FROM electronic chips to chicken nuggets and from hypertension medication to cars, computers and designer clothes, products are running short everywhere. Sparse shelves in supermarkets have become the new norm.
“I waited for more than 10 months to get my car,” says Anis Ahmad (not her real name), one of the many consumers being affected by the ongoing global supply chain crisis.
A leading grocery chain owner explains the situation, “As new variants hit Europe, the United States and Australia where most of our imports are sourced, there will be disruption in supplies in the near term.”
His chain has sought to mitigate matters by expanding its sourcing of products so as not to face shortages if and when new Covid-19 clusters appear near manufacturing plants.
Channel checks show that many retail store owners say they are hard-pressed to take on new orders on certain items “as we don’t know and cannot promise when these items will be in our stores”.
Demand rising: Customers buying fruits in a grocery store in Spain. There’s no indication that supply chain disruptions will ease globally in 2022 as bottlenecks at ports, labour shortages and capacity crunches remain widespread. — Bloomberg
The supply chain disruption also hampers producers from securing their raw materials.
Globally, multinational companies like McDonald’s, Apple and Toyota have been facing production issues due to this.
The movement restrictions in the past two years have caused the global supply chain disruption.
One early sign was when factories around the world had to trim down operations to help curb the infection of the Covid-19 pandemic in their countries.
This was followed by several new waves of Covid-19 that sent countries on a few rounds of lockdowns at different periods.
CJ Century Logistics Holdings Bhd executive director Edwin Yeap says the pandemic has disrupted nearly every aspect of the global supply chain. He says there are massive dislocations in the container market and warehouses are full to the brim.
Compounding matters is a serious shortage of workers. It has been well documented that during the pandemic, large numbers of employees left their jobs, either through retrenchments or resignations. Many had opted to begin their own online businesses or join the gig economy.
He adds that in the rush to reopen economies across the globe, new job opportunities had come about, leading employees to change their jobs, especially securing ones that paid better.
“There is a gap in the labour market. As consumer demand is expected to increase going forward, this will add more pressure on the supply chains and potentially lead to more logistics delays. It will also increase demand for labour,” he says.
Bank Islam Malaysia Bhd chief economist Afzanizam Abdul Rashid adds, “The stop-starts operating condition due to Covid-19, shortages in foreign labour and the inability to procure labour in a timely manner that may have been contributed by strong interest in the gig economy are some of the factors that may contribute to the issue”.
As long as the labour issues are not addressed, he believes that the supply chain constraints will be for the long haul.
Meanwhile, as a logistics company, Yeap says CJ Century has seen growth of approximately 20% of annual demand for its services compared to approximately 10% growth before the pandemic.
It manages a warehouse space of 4.5 million sq ft, which is currently fully occupied.
“We expect demand for logistics to remain robust in the coming years, as we expect consumer demand to remain elevated,” he adds.
The company recently disposed of its loss-making courier service outfit, putting it in a position to invest in new warehouses and expand its storage capacity.
Yeap expects that the supply chain woes would take at least another year to be back to normal.
Mismatch in business model
Experts believe that the pandemic has caused a perfect storm that led to cracks in the supply chain that was already vulnerable in the first place.
“Traditional supply chains were developed to be as lean and cost-optimised as possible. This approach worked well when there were few interruptions in the system.
“A pandemic outbreak of this magnitude, however, caught many companies and whole industries unprepared, creating a huge shockwave of ripple effects through their entire supply chains and businesses,” Ernst & Young Consulting Sdn Bhd consulting partner Tan Chiaw Hooi (pic below) tells StarBizWeek.
Tan: A pandemic outbreak of this magnitude caught many companies and whole industries unprepared.
She adds that the pandemic has put a spotlight on the current supply chain models that were already pressured by trade disruptions, quality issues and environmental, social and governance (ESG) pressures.
“As such, while the pandemic may not be the only cause, it could have been the last straw that broke the camel’s back,” she quips.
CJ Century’s Yeap says in the past many companies had sought to keep their inventories lean as part of cost-cutting measures. This has exacerbated the current supply chain woes.
Toyota, for example, is known for being a pioneer of the “just in time” manufacturing model that minimised inventory and increased efficiency.
But with a reduction in production due to Covid-19, supply chain problems and sudden spikes in demand from consumers, this model may not be suitable.
Many companies had assumed that the pandemic would suppress demand, and in turn had slashed their manufacturing capacities.
But the pandemic led to spikes in demand from consumers, which came about from the many stimulus packages announced by governments around the world.
Meanwhile, Toyota recently announced that it would suspend production at five domestic factories in January due to supply chain issues, chip shortages and the Covid-19 pandemic.
Japan’s top automaker said it is projecting a bigger reduction in vehicle production in North America in January to 50,000 units due to supply chain issues.
Rising consumer demand adds pressureThe increase in consumer demand saw more goods being shipped from Asia to the US and vice-versa. This led to congestion at major ports around the world, especially in the US and China.
It was reported that some ships took months to unload goods.
The cost of shipping has skyrocketed. A standard 40-foot equivalent container had reached a cost of US$11,000 (RM46,300) to ship last September, almost four times higher than before the pandemic, according to the Freightos FBX Index.
Westports Holdings Bhd’s group managing director Datuk Ruben Emir Gnanalingam (pic below) says many containers remain at the port for a very long time, restricting their capacity.
Ruben: Many containers remain at the port for a very long time, restricting their capacity. The main reason it is happening is due to lockdowns globally.
“The main reason it is happening is due to lockdowns globally taking place at different times.”
He adds that the recent floods in the Klang Valley have also impacted port operations, as many of its workers could not come to work.
Ruben expects that it would take more than one year for the supply chain disruption to normalise.
“As long as lockdowns are used as a tool to fight the virus, supply chain disruptions will continue.
“Once the last lockdown happens globally, add six months from that and that is when things will start to normalise. We might have a long way to go,” he says.
Meanwhile, Tan of E&Y argues that the global supply chain woes could take between one to three years to return to normal.
“Every company is different – there’s no one-size-fits-all approach or timeframe for recovery.
“From our engagements with clients, they think it will take at least between one to three years to fully recover from the fallout of the Covid-19 disruption.
“For some industries such as construction and air travel, it may be possible to stabilise in one year, but not sufficient to recover,” she says.
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Multiple industries have been affected by the supply chain issues. Continued delays in the delivery of key inputs is likely to cause a decline in manufacturing output, making economic recovery even more difficult.
According to EY’s global research, based on feedback from some 200 senior executives in consumer, retail, life sciences, industrial, automotive, and advanced technology industries, 72% said the pandemic had a negative effect on supply chains.
Some sectors were hit particularly hard – among survey respondents, all automotive and nearly all (97%) industrial product companies said the pandemic has had a negative effect on them. About 57% said they faced disruption in operations. Among negative effects cited include reduced productivity (69%), inability to achieve development goals (64%), and reduced revenue (61%).
“We observed a similar impact in Malaysia, where companies were not able to produce to meet demand due to shortages in the supply of raw materials sourced from overseas, or delays in supply as a result of port congestion.
“The logistics industry was badly impacted due to closure of borders, especially during the time when interstate travel was not allowed.
“For the food industry, traditional restaurant businesses were badly impacted.
“However, some had quickly pivoted to online platforms to sell their food and offer ready-to-eat meal deliveries, and they appear to have benefited from this shift as more people were eating at home during the pandemic,” says Tan from E&Y.
When asked if the supply chain issues could impact this year’s economic recovery, Bank Islam’s Afzanizam (pic below) says the economy will grow positively but the speed at how excess can be absorbed into the labour market may take a while.
Afzanizam: The economy will grow positively but the speed at how excess can be absorbed into the labour market may take a while.
There’s no indication that supply chain disruptions will ease in 2022 as bottlenecks at ports, labour shortages and capacity crunches remain widespread.
Under its zero-tolerance Covid-19 measures in China, the recent lockdown in its ports to curb the spread of the latest Omicron variant spreads could pose a new risk to supply chain woes.