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6 critical risks facing supply chains in 2022

Jonas Mehrhoff
Jonas Mehrhoff
May 23, 2022
5 min read

Note on the authors

Heiner Murmann is the founder and CEO of Orkestra SCS, a logistics, technology and services company. In addition, Heiner serves as Executive Chairman for Evolution Time Critical and President of The Five Inc., and as an Advisory Board Member for both Metro Supply Chain Group and Black & McDonald Limited. Notably, Heiner previously held various senior executive roles at DB Schenker, one of the top three global logistics companies, as a Member of the Board of Management responsible for Air and Ocean Freight, and as CEO of the Region Americas.

Arnold da Silva, Senior Ocean Freight Advisor for Orkestra SCS, is head of an ocean freight consulting company where he actively advises global shippers on ocean freight strategy and execution. With 40 years of experience in the ocean freight industry, Arnold served as Executive Vice President for Ocean Freight Region Americas for DB Schenker. Arnold's passion is to conceptualize and implement innovative ocean freight solutions that transform one’s supply chain and promote a shipper's success.

Across much of the world, we are starting to see signs that pandemic-related supply chain disruption is easing. First, the Omicron variant was less severe than some predicted. Many parts of the world and major economies are enacting or announcing an end of pandemic-era restrictions.

- DHL

It’s been a turbulent time for global supply chains as companies navigate the many hurdles brought about by Covid-19. While the disruptive effects of the pandemic appear to be subsiding, it is certainly not the only risk facing supply chains in 2022. From geopolitical crises to shortages related to environmental instability, the supply chain is not out of the woods just yet. Here is an overview of the risks facing supply chains currently, and ways to minimize the impact on supply chains. 

Russian war in Ukraine

Disruption to upstream suppliers in Russia and Ukraine will further weaken global supply chains. Visibility into this extended network thus becomes key to tackle potential risks.

- Deloitte

The conflict in Ukraine has created significant upset to the global supply chain, as aircraft and ocean vessels have been diverted and energy prices pushed up. Russia and Ukraine account for:

  • Above 25% of the world’s trade in wheat 
  • More than 60% of global sunflower oil 
  • Around 30% of global barley exports

In addition, Russia is responsible for the global provision of:

  • 30% of platinum-group elements including palladium
  • 13% of titanium
  • 11% of nickel
  • A significant amount of neon
  • A significant amount of fertilizers

How to manage the risk?

Swift movement in multi-sourcing is key to minimizing the risk related to the global disruption to agricultural and energy products resulting from the Russian war in Ukraine. Activating secondary supplier relationships and choosing alternative locations for key commodities is vital for the supply chain.  

Ocean freight bottlenecks

The six-day Suez Canal blockage in 2021 reverberated around the world, with more than 60 000 cargo containers stocked with goods prevented from distributing to customers. While this might be an outlying event, bottlenecks in ocean freight have been predicted by Everstream Analytics – a supply chain analytics company – to be an area of risk in 2022. A freight bottleneck refers to recurring congestion on ocean highways whereby traffic backs up because of volume congestion, impacting port capacity. Delays brought on by the pandemic have resulted in massive congestion with labor shortages and shutdowns seeing ports operating beyond sustainable capacity for months. The risk to the supply chain remains high this year as bottlenecks continue. 

How to manage the risk?

It’s time to replace manual ocean freight shipping processes with software that handles the task of freight management. There are a few ways within technology in which these risks can be managed;

  • Digital transformation within the supply chain remains a priority, particularly for those companies that have been slow to respond to this revolution. 
  • Cloud-based solutions that provide supply chain managers with access to real-time data can prevent siloed data, improve visibility and prevent disruptions – as was seen in the Ever Given crisis in the Suez Canal.
  • Collaboration and coordination between ocean liners will also allow for real-time scheduling and flexibility when bottlenecks occur. 
  • Standardizing international freight shipping documentation will also streamline processes while minimizing unnecessary fines and freight detention. 

Increasing inflation

The supply chain is an interconnected operation, in that, when prices go up in one area, there is a knock-on effect down the line. Currently, there is massive inflation in labor, energy, and transport costs. These all create significant risk to the existing supply chain. According to the Economics Observatory, the Consumer Price Index in the USA showed an increase in consumer prices by 5.4% in December 2021 compared with the previous year.

How to manage risk?

Companies will need to look at transferring this risk either upstream or downstream through multi-sourcing the supplier base and strict contract time periods to account for sudden price changes. 

Global port congestion and warehouse shortage

The global supply chain crisis has resulted from two years of pandemic-related delays, severe labor shortages, and antiquated infrastructure, especially in the USA. This created massive clogging at US ports, consequently pushing warehouses to capacity. This has created massive risk to the supply chain as managers scramble for space. 

How to manage the risk?

Companies need to implement technologically driven, robust processes using real-time visibility and predictive-visibility platforms that can provide advance information on congestion and bottlenecks across global ports. Warehouse managers should utilize digital platforms that incorporate WMS, which can handle demand planning and demand forecasting through real-time data monitoring of inbound and outbound assets. 

Lack of sustainability

The growing awareness of environmental, social and governance (ESG) issues will directly impact the supply chain in the coming months as legalities surrounding unjust practices and dealings become more stringent. Some examples of how this is being translated into real-time changes include:  

  • US regulations prohibiting the sale of any materials mined, manufactured, and produced in the Xinjiang province, home to the Uyghur people who are believed to be forced into labour. 
  • Financial sanctions in Russia closing off transport routes and preventing shipments out of Russia and Ukraine. 
  • Norwegian and German laws holding companies accountable for human rights violations in supply chain. 
  • Climate crisis regulations being enacted to reduce emissions along global supply chains. 

How to manage the risk?

While many companies have implemented sustainability in their mission statements, an Oxford Economics survey of the global supply chain showed that only 52% of 88% have transferred these statements into action. The supply chain needs to be putting into practice the plans it has set out. 

According to Gartner, ‘visibility drives resiliency and sustainability’ which encourages supply chain managers to consider AI-driven technology for improved visibility across the supply chain. By collecting and consolidating real-time data, supply chain managers are able to meet the ESG initiatives and mitigate the impending risk.  

Resurgence of Covid-19

While many businesses are almost back to normal operations and the world is opening up in a ‘post-pandemic’ way, the reality is that Covid-19 is still a very real threat. Any potential new, more devastating variant can result in more lockdowns and restrictions that pose a very real risk to an already threatened supply chain. The lockdowns in Shanghai currently are testament to such risks.

How to manage the risk?

Using advanced data analytics, companies can better predict areas in their supply chain operations that could be impacted and the extent of that impact and take preventive measures to mitigate those risks. Real-time visibility and predictive visibility are a must to avoid risks posed by the continuous disruptions caused by COVID-19.

Key takeaways

One thing is certain: 2022 will bring unexpected twists and turns that will require continued agility, resilience and adaptability in supply chains. While the two-year journey to get to this point has been exhausting, further diligence is required. Business leaders are telling us that their boards and executive committees have supply chain disruption fatigue and want to know when the pain will end. As a community, we’ll need to navigate our own soft landing as markets move back toward equilibrium.

- Gartner

Trade embargoes, global conflict, ESG concerns and a rise in regulations are creating significant risks to the supply chain. The supply chain industry will increasingly move along the path of digital transformation as machine learning and IoT-based software to mitigate these and other risks. Companies that have not yet considered streamlining operations through supply chain optimisation software would be advised to start sooner to avoid bearing the brunt of these risks. 

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6 critical risks facing supply chains in 2022

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