Under pressure: Why flexible and resilient supply chains are more important than ever in order to meet economic challenges

Date: 04/09/2021
Author: Lucy Eruero
Company: OP2MA

The pandemic has forced companies to realise that globalisation needs better more resilient supply chains, which is a development that industrial insurers and risk consultants can only welcome.

The extent to which supply chains came under pressure during the pandemic is illustrated by the situation faced by the automotive sector. Due to a lack of semiconductors, many carmakers were threatened with production stoppages, delays in deliveries and measures such as short-time working. There were no short-term supply alternatives, and many manufacturers had to cut production. This was a blow to an already hard-hit industry.

Similarly, the ‘pingdemic’ which could be described as a short-term issue that is exposing a long- term problem, has taken its toll on the country. Many workers have found themselves being told to isolate, meaning they cannot enter the workplace. As a result, food supply chains are starting to fail, with many of the major supermarkets experiencing gaps on their shelves. MPs and industry leaders urged the government to ease the growing crisis by including supermarket staff, lorry drivers and other frontline workers on a list of those exempted from automatic self-isolation.

However, even before the "pingdemic", Lorry drivers were already in short supply, with the Road Haulage Association estimating a shortfall of about 60,000, caused in part by cancelled driving tests.

Also, container haulage driver shortages are the result of a combination of shipping lines forcing hauliers to accept sky-high rates and the sale of driver services as a product you can buy off a ‘haulage supermarket’ shelf. Driver pay has been kept low through supply and demand mechanics that are beneficial to large haulage companies, the shipping lines and their customers. Part of the justification for this came from there having “always been a lot of capacity”, leading to competition on rates.

This perception has radically changed over the years, particularly with the twin shocks of Brexit and the pandemic, the latter causing heightened demand from supermarkets for drivers, leading to the “supply and demand balance altering” in truckers’ favour. There’s not one fix to driver shortages, but on the financial side, reviewing driver pay and improving conditions is a good first step.

Other factors impacting supply chain

COVID-19 has shown the vulnerability of various sectors which has increased social awareness and activism and has challenged companies to rethink the fundamental ways in which they operate. The UK is experiencing trends that are impacting supply chains. Even if parts of the economy recover to previous levels over the coming months, certain segments and sectors will struggle to get back to previous levels post pandemic.

The rise of economic nationalism and the future relationship with China has meant that perceptions have shifted on globalism and international trade. The United States may take a harder line on China and China may not cooperate with an international inquiry into COVID-19. Over the next few years we are likely to see existing reliance on China start to wane, particularly impacting companies who rely on Chinese production of their components or products.