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The supply chain crisis is one with many facets. What we're
seeing is not only disruptive. It's historic—the first major
disjunction in the synchronized supply chain system in 30 years of
globalization.
Supply chains used to be something only supply chain managers
talked about. Now you'll hear about them in profit reporting by
companies like Amazon, Apple, and Gap. You hear about them as
explanation of the decline of Japanese GDP. You hear about the
crisis from consumers worried about their holiday packages. And
you'll hear about it in anguished discussions, ranging from retail
shop owners to prime ministers and presidents.
These insights came from IHS Markit Vice Chairman Daniel Yergin,
Ph.D. in our recent webinar
Supply Chain Crisis: What's Ahead for 2022. He was joined by a
panel of IHS Markit experts:
Chris Williamson, Chief Business Economist
Peter Tirschwell, Vice President, Maritime & Trade
Matteo Fini, Vice President, Automotive Supply Chain,
Technology and Aftermarket
Jim Burkhard, Vice President & Head of research for oil
markets, energy & mobility
Tom Scott, Global Director, Agribusiness Consulting
The panel provided a panoramic view of the crisis through an
in-depth Q&A session. Here are some key highlights.
Yergin: Does this supply-chain disruption reflect the
longest delay we've tracked?
Chris Williamson: It is by far the longest disruption that we've
seen in nearly 30 years. The rate of deterioration isn't quite what
it was in the summer. There are signs of it easing a bit. We're
getting some good production numbers coming out of Japan and
Southeast Asia. Even China is stabilizing. So that's helping a bit.
But nevertheless, these shortages are quite unprecedented.
Yergin: I think we've all seen the pictures of all those
container ships stacked up off the coast of Southern California.
What is going on with shipping and
transportation?
Peter Tirschwell: We're in the deepest crisis that the container
shipping supply chain has ever seen. And I'd like to be able to say
that we see signs of abatement, we see signs of the log jam
breaking. But frankly, we don't. One reason is that e-commerce
sales saw anywhere from 5 to 7 years of growth in a single year.
E-commerce requires distribution centers. The distribution center
footprint was not prepared and still remains completely unprepared
for that level of volume.
Yergin: One shortage that has been particularly conspicuous
throughout the supply chain crisis has been that of computer chips.
Where does the computer ship shortfall stand
now?
Matteo Fini: We think that the one-off shock is largely in
control. However, there are other areas of the chip shortage to be
concerned about because, obviously, semiconductors are formed by
quite a few component families. And as we look at 2022, we think
that analog chips will be another area of a big concern.
But computer chips will absolutely still be a problem in 2022.
We're looking at lead times that normally would be in the region of
12 weeks shot up to 26 weeks. And that has major repercussions for
the auto industry. The chip shortage has meant that a vast portion
of manufacturers' portfolios could not be manufactured. As we look
at 2024, 2025, 2026, there is a significant structural deficit that
has to be addressed, which would require significant investment in
capacity. That takes time to build and takes time to execute
on.
Yergin: How have supply chain issues affected oil and
gas price trends? And I know it's a little complicated
with Omicron…
Jim Burkhard: With Omicron, it's very early days. We don't know
anything definitive about it. But what we do believe at this point
in time is that this is not a repeat of March and April of last
year, when oil demand globally fell about 20%. You're not going to
have that type of reaction. However, this is clearly a negative for
demand. It's going to hurt jet fuel demand in the short term. We
think it will cut off about 100,000 barrels per day of jet fuel
demand. We're talking an oil market of 99 million barrels per day
of consumption. So that's a relatively modest impact right now. But
again, it's early days in terms of understanding it. But Omicron
hits at the heart of oil demand and that's mobility. Looking to
next year, market conditions are not static, they're dynamic. 2022
will be different from this year.
Yergin: Let's talk about a liquid commodity that's not oil.
Coffee has been very good case study of what's happening.
Can you tell us why?
Tom Scott: The supply chain problems compounded other problems.
Coming out of the pandemic, we saw demand increase for all foods.
The onset of the supply chain issues increased costs by about 30%.
The price of coffee, consequently, has risen some 30-40%.
Yergin: What's going to change in food and agriculture
industries from these supply chain disruptions?
Scott: We spent a generation working our supply chains with
just-in-time supply, keeping inventories minimal. I'm not saying
we're going to reverse that 100%. But we're definitely encouraging
our clients and the people we work with to think about their
inventory levels and what they need in terms of buffer stocks to
guard against these disruptions.
Yergin: John, as Director of Pricing and Purchasing, one of the
things you do in your job is worry about commodities. Can
you tell us which commodities you're particularly concerned about
for 2022?
John Anton: There is not enough electrical. Historically,
electrical steel was used to make electric motors, generators and
transformers. Now it has to make all of that—plus batteries.
And there's not enough capacity to meet that new demand sector. And
while there was ample idle capacity before, it will be stretched
too thin now. Battery vehicles for 2022 will get all the steel they
need. But if you make electrical machinery, you're only going to
get about 80%, at best 90%. And we've heard this from the major
electrical machinery makers around the world. We have been told the
same thing by the mills.
Yergin: We've been talking about pretty short-term impacts,
short-term being 2022 into 2023. But obviously, companies are
balancing these short-term decisions with longer-term strategic
plans. What other risks around supply chains, longer term,
are on the horizon?
Nathalie Wlodarczyk: What we're expecting to see as we go
through 2022, and certainly beyond, are political decisions playing
a much more significant role. We see this, particularly, as
governments start to make decisions about strategic resources and
how to secure competitive advantage and focus on things like
strategic minerals and components critical to energy
transition.
There is increased focus on climate risk, on ESG responsibility.
And there are two dimensions there. One of the direct impacts is
when climate ends up leading to disruption because we don't have
enough resources being produced, there's not enough supply. But
social and governance instability that can surround that as well,
as climate action starts to come into focus.
Yergin: So, for supply chain managers, what does
geopolitical risk mean? And how will those risks manifest
themselves?
Wlodarczyk: It's largely about governments and government
decisions that ultimately trickle down to very specific impacts.
We're starting to see a much stronger focus on supply chain
resilience from governments, whether that's Build Back Better in
the US or emphasis in China's 14th Five-Year Plan on
self-sufficiency. The EU has similar focus on strategic autonomy
for high-capacity batteries, semiconductors, and critical minerals
required for these newer, greener technologies. Competition for key
minerals and resources is going to be much starker.