Covid19 impact and disruption on worldwide supply chain delays

by Adhecogen

Shipping container Backlog
A shipping container getting loaded onto a truck

The COVID-19 pandemic affected the normal functioning of global society. Sea, land, and air communications systems decreased their circulation due to the implementation of isolation. This measure affected international supply lines.

What is the global supply chain?

Global supply chains are complex, varied, fragmented, dynamic and evolving organizational structures. Various terms are used to describe them, such as “global production networks” or “global value chains.” All these terms refer to the same essential aspects of cross-border production and trade.

Global supply chains have become a common way of organizing investment, production, and trade in the globalized economy. In many countries, particularly developing countries, global chains have created jobs and opened up new employment opportunities for economic and social development.

The global supply chain is made up of the following:

  • Suppliers
  • Transportation
  • Manufacturers
  • Customers
  • Communication
  • New technologies

How did the covid 19 pandemic affect the supply chain worldwide?

One of the main control measures implemented during the peak of the Covid 19 pandemic was the limitation of global circulation and isolation. This made cross-border transport much more costly and complex. In addition, workers from different sectors stayed at home, affecting production lines. And on top of this, the decrease in consumption of various products and the use of non-essential services are also contributing factors that affect the supply chain worldwide.

A location that was significantly affected was the Chinese city of Wuhan, where the pandemic first started. This city pioneered the isolation measures, which had severe implications on production. Wuhan’s industry represents 25% of China’s automotive and 15% of the technology industry.

Many companies use raw materials produced in different countries and hire workers in other countries to receive and put the products together. These companies strongly rely on the border to safely transport their items.

For this reason, the border closures made production more difficult, slower and more expensive. Many products saw their production costs increase; therefore, their market price decreased the company’s profits. This crisis was exacerbated in developing countries. Their local and small businesses have lower productivity and economic power, making them more susceptible to change.

The decline in profits and the increase in costs result from the backlog in the worldwide supply chain for components. The slower and more costly transportation of goods is, the slower the entire production line is, affecting suppliers and customers.

How has the supply chain recovery been?

The recovery of the global production chain has been underway since 2021, never without difficulties. The rapid spread of the omicron variant led many countries to re-impose mobility restrictions and exacerbated labour shortages. Supply disruptions are still weighing on activity and pushing inflation higher, adding to pressures generated by strong demand and high food, energy and commodity prices.

The projections point to other issues and policy twists that will further influence the outlook. This year, global growth is expected to be 4.4% -0.5 percentage points lower than in the previous forecast-primarily due to downgrades in U.S. and Chinese performance. In the case of the United States, this is due to a lower likelihood of passage of the Build Back Better fiscal program, the anticipated withdrawal of extraordinarily accommodative monetary policy and persistent supply disruptions. In the case of China, the reason lies in the uninterrupted contraction of the real estate sector and the fact that the recovery in private consumption has disappointed expectations.

But not everything is negative; the return of global circulation has caused transportation and raw material costs to decrease again, directly affecting the final costs of production positively. The pandemic’s control and the measures implemented have led to the recovery of the global production chain.