Following a series of disruptions caused by the COVID-19 pandemic, ongoing geopolitical conflicts and a historic year with elections in over 60 countries, supply chain managers are facing increasing challenges.
“You could say we’re really in a new era,” Marissa Adams, head of international trade solutions at HSBC Americas, told Yahoo Finance in a video interview. “I don’t think normalcy is happening anymore. I think what companies are facing now is that supply chain disruptions are becoming the new normal.”
Supply chain disruptions have always been a part of global trade, dating back to the days of the Silk Road, which connected trade routes between Europe, the Middle East and Asia, but in today’s market, companies are vulnerable to unexpected global events that impact their ability to trade efficiently.
A new report from HSBC says there are several factors putting pressure on global supply chains this year: Products and global supply chains are more complex than ever, and suppliers need to secure capital in an inflationary environment.
Also, certain region-specific issues, such as attacks in the Red Sea and drought in the Panama Canal, have forced ships to reroute. And globally, more than a quarter of the world’s population will vote this year.
“Certainly, trade continues to be a big topic on the campaign trail,” Adams said. “Part of it is protectionism, part of it is nationalism, [and] Other focus.”
A cargo ship travels through the Panama Canal as authorities increase vessel traffic through the waterway following drought-related restrictions, June 13, 2024. (AP Photo/Mathias Delacroix) (AP)
The complete supply chain picture
The COVID-19 pandemic has served as a wake-up call for businesses exposed to geopolitical events and other vulnerabilities, Adams said. Until now, companies have built their supply chains with a primary focus on reducing costs and increasing revenue, he said.
“We went from a world where goods were ‘just in time’ to now being in a ‘just in case’ mindset,” Adams said. “This has really changed a lot of corporate balance sheets.”
As companies move operations closer to home, increase security, and work to reduce supply and distribution costs, supply chain strategies have evolved to meet these new challenges.
“The first thing companies should consider is to really take a hard look at their supply chains,” Adams said. “Where do you think your risk is? Is it concentrated with certain suppliers or are there certain countries that are potentially at higher risk?”
The story continues
Adams also offered guidance on managing relationships with the Chinese business sector amid the Biden administration’s recent tariff hikes, noting that companies should consider potential risks holistically rather than country-by-country.
“Supply chains are complex, and even if something is produced in the U.S., there are different parts that are produced in Asia, Europe, other markets around the world,” Adams said. “What we try to tell our clients is to look at the risk holistically. Rather than just looking at one category of product, are there geopolitical risks in one country versus another? Are there risks in terms of transportation in another country?”
President Joe Biden sits down to sign a document imposing large new tariffs on some imports from China on May 14, 2024. (AP Photo/Susan Walsh) (The Associated Press)
When asked about how supply chain issues could affect investor portfolios, Adams pointed to three signs investors should look out for:
First, look at senior management’s strategy, she said: Is your CFO regularly talking about supply chain resiliency, focusing on both risk and cost?
Second, how focused is the company in key sectors and markets? For example, much of the semiconductor manufacturing is done in Taiwan, but many companies are looking to move those operations to the U.S., and that will take time.
Finally, Adams said investors should evaluate companies’ infrastructure investments and whether they are diversifying their supply chains to avoid unnecessary risks.
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