After a series of COVID-19 pandemic disruptions, ongoing geopolitical conflicts, and now a historic year in which more than 60 countries are holding elections, supply chain managers face a growing number of challenges.
“I would actually say that we’re in a new era,” HSBC Americas head of global trade solutions Marissa Adams told Yahoo Finance in a video interview. “I don’t think that there is a normalization anymore. I think that what companies are now facing is that supply chain disruption is the new norm.”
Supply chain disruptions have always been a part of global trade, even dating back to the Silk Road, which connected trade routes in Europe, the Middle East, and Asia. However, companies in the current market are more exposed to unexpected global events, which impacts their ability to trade effectively.
According to a new report from HSBC, there are several factors putting pressure on global supply chains this year. Products and global supply chains are more complex than ever before, and suppliers have to secure financing in an inflationary environment.
There are also issues particular to certain geographic regions that are causing ships to change their routes, such as the attacks in the Red Sea and drought affecting the Panama Canal. And globally, more than a quarter of the world’s population is going to the polls this year.
“One of the things, for sure, is that trade continues to be a huge topic on the campaign trail,” Adams said, adding, “Some of that is due to protectionism, nationalism, [and] other focuses.”
A holistic view of supply chains
According to Adams, the COVID-19 pandemic provided a wake-up call to companies exposed to geopolitical incidents and other vulnerabilities. Previously, companies set up their supply chains to mostly focus on reducing costs and improving the bottom line, Adams said.
“We went from a world where goods were ‘just in time,’ and now we’re looking at people going, ‘Just in case,'” Adams said, “and that’s really changed a lot of companies’ balance sheets.”
Supply chain strategies evolved to account for these new challenges as companies began moving their operations closer to home, adding security, and working to reduce supplies and shipping costs.
“Things that companies can look at is, firstly, … taking a real, big deep dive into their supply chain,” Adams said. “Where do they see risk? Are there certain suppliers they have a concentration on, or are there countries where, potentially, there’s more risk around it?”
Adams also offered guidance on managing relationships with China’s business sector amid recently increased tariffs from the Biden administration, noting that companies should look at potential risks holistically instead of on a country-by-country basis.
“Supply chains are complex, and even when things are produced here in the United States, there’s a number of different components that are produced in Asia, in Europe, in other markets around the world,” Adams said. “What we’re trying to talk to our customers about is taking a look at the risks holistically. Don’t just look at one category of your products. Do you have a geopolitical risk in one country versus another? Is there a risk from a transport aspect in another country?”
When asked about how supply chain issues could impact investors’ portfolios, Adams pointed out three signs investors should look out for.
First, she said, keep an eye on senior leadership strategy. Is the CFO talking about supply chain resilience regularly? Are they focused on both the risks and costs?
Second, how concentrated is the company in key sectors and markets? For example, a lot of semiconductor production is based in Taiwan, but many companies are trying to bring those operations to the US, which would take time.
Lastly, Adams noted investors should evaluate a company’s infrastructure investment and whether the company is investing in its supply chains in a diversified manner to avoid unnecessary risk.
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