Continuous spread of COVID-19 over the past year has reignited debate about near-shoring and re-shoring initiatives, according to Everstream Analytics.
2021 looks set to be a year of recovery for supply chains severely affected by the COVID-19 pandemic with five key trends deserving of particular attention over the next 12 months, according to Everstream Analytics’ 3rd Annual Analytics Risk Report.
Shorter, more localized supply chains
The report highlighted that the continuous spread of COVID-19 over the past year has reignited the debate about near-shoring and re-shoring initiatives, especially in the over-reliance on a single country’s (i.e., China) manufacturing facilities and supplier network.
“The recent week-long Suez Canal blockage is a perfect example, as it exacerbated the impact of regional disruptions on global companies. From tariffs and delays to production halts, re-routed ships, and surging fuel costs, companies that used single-source suppliers in hard-hit regions have endured major production delays and losses and must consider alternatives like nearshoring in the future to mitigate these potential risks.”
However, the report underlines that bringing offshore manufacturing closer to home may not be as easy as it sounds. An Everstream Analytics survey in January 2021 on the impacts of COVID-19 on supply chain shifts, revealed that a mass exodus of global supply chains uprooting out of China remains unlikely for several reasons.
These include a lack transportation infrastructure in alternative markets. In addition, shifting production and sourcing away from China requires companies to find alternative sources of raw materials and intermediate inputs.
Insolvencies among smaller and more specialized suppliers
Before the outbreak of COVID-19, experts expected the global insolvency index to rise for the fourth consecutive year in 2020. In many countries affected by the pandemic, however, governments intervened with temporary relief measures to prevent a liquidity crisis and save companies from failure. They amended bankruptcy laws, provided direct financial support for ailing businesses, and offered incentives for companies to retain their workers, the report noted.
“If vaccines help to bring the virus under control during 2021, these temporary relief measures will be gradually withdrawn. On a global level, an increase in insolvencies is expected in the first half of 2021.”
Overall, smaller and more specialized suppliers are considered to be at a higher risk of filing for insolvency for several reasons; for example, dependency on one or two large customers or a single sector, such as aerospace or automotive, which have reduced or canceled orders, it added.
Continued cyber attacks
In 2020, Everstream Analytics saw a 216% increase in reported cyber attacks from 2019, including threats like data breaches, ransomware, and operational vulnerabilities. Incidents were most prevalent in North America, the European Union, and East Asia, followed by parts of South Asia, the Middle East, South America, Australia, and Africa.
“The residual effects of major events of the year, most notably the global COVID-19 pandemic, are expected to generate additional attack opportunities for 2021.
“The attacks on MSC, CMA CGM, and the IMO also showed a greater focus of hackers on shipping organizations and the disruption of ocean freight supply chains in general. That trend is likely to continue as global logistics operations remain under strain due to travel restrictions and air cargo constraints.”
Persistent air cargo constraints
COVID-19 has had severe implications for the global air cargo industry, on both the supply and demand sides, which continue to cause ripple effects throughout supply chains.
As of January 2021, global air cargo capacity remained around 32% below the levels of the same period in 2020 (compared to more than 50% during the initial phase of lockdowns in the first half of last year.
“With COVID-19 outbreaks and travel restrictions likely to remain in place well into 2021, it is unclear how much belly capacity can or will be added, leading to increased uncertainty around freight rates.
“The other big unknown is the impact of COVID-19 vaccine distribution on international air cargo capacity.”
Increasing use of multimodal solutions
While many organizations relying on just-in-time supply chains still used air cargo as their primary option, in particular in the early stages of the outbreak, companies are likely to shift away more transportation to multimodal solutions due to two factors: the persistent uncertainty around air cargo capacity in 2021 amid global vaccine distribution efforts and continued travel restrictions; and significantly lower transportation costs, compared to air cargo, and the ongoing container shortages affecting both ocean and rail logistics, the report observed.
An Everstream Analytics survey of supply chain professionals at the start of the year revealed that this trend was driven less by cost concerns, and more by the need for reliable services amid ongoing worry over congestion and delays with air cargo shipments.
“Amid the turmoil in the logistics market, some multimodal solutions have received high interest throughout 2020. On the transcontinental lane between Asia and Europe, shippers looking for cheaper and more reliable services have increasingly switched some cargo to rail transportation.”
Source: Lloyd´s
