WAYS TO IMPROVE GLOBAL SUPPLY CHAINS

WAYS TO IMPROVE GLOBAL SUPPLY CHAINS

Vasiliy Lobov

Economist,

Russia, Nizhny Novgorod

Global supply chains represent networks which may cover some continents and countries in order to search for and supply any goods, works, services. They include the flows of data, processes and resources all over the world. Such global supply chains use low-cost country-based sourcing. It means the purchase of goods and services in countries with lower labour rates and lower production costs than in the country of origin [1].

The global market value for the supply chain management was estimated in 2021 in the amount of USD 16.64 billion. By 2030 it is expected to reach the amount of USD 58.89 billion. So, the annual growth rate of the global market between 2021 and 2030 is supposed to be 10.8% [2] (see Fig. 1). The market expansion is promoted by the development of digital technologies, increased demand for the enhanced traceability of supply chain processes by end users, the improved transparency of shipping information and the encouragement for the growth of the retail and e-commerce sectors. (Refer to Fig. 1).

Figure 1. The global market value for the supply chain management from 2020 to 2026 all over the world (in USD billions) [2]

Notwithstanding such positive forecasts and expectations, supply chains in the international format are frequently vulnerable to various crises, disturbances and uncertainties. An example thereof are restrictions associated with COVID-19, the aggravated conflict in Ukraine in early 2022, the introduction of international sanctions against the Russian Federation. The above disturbances have resulted in the fourfold increase of global container shipping rates within the recent two years and longer schedule delays. On some key trade routes, such as Asia-to-Europe and Asia-to-North America, rate spikes are even higher and delays are more frequent.

Current restrictions imposed on Russia and possibilities for their further expansion continue to affect the cost of fuel, thus, exacerbating the crisis in the supply chain. Although the freight markets have a limited direct impact on Russia, the global logistics has to withstand an increasing number of risk factors, including airspace restrictions, the uncertainty about the future dynamics in the consumer demand as well as US-Chinese trade wars [3].

Thus, in view of the foregoing, the study of the current situation in the global logistics market, the analysis of possible prospects and formats for its development is today a relevant issue, which predetermines the choice of the subject of this paper.

A great number of scientific works are today devoted to the conceptual foundations, research and methodological approaches and practical recommendations for improving the supply chain management in global terms.

The elaboration of logistic distribution models, reorganization and integration of the product sales channel structure on an international scale is carried out by scientists G.Yu. Kuryaeva, O.D. Makhova, E.V. Pavlyuchenko, I.V. Seryapova. The study of problems faced by global supply chains are described in the publications of T.S. Tasueva, V.V. Borisova, V.G. Varnavskiy, A.G. Lipatov, A.V. Smirnova, N.Yu. Izyumova, O. Tinkova.

However, despite such close attention of scientists and experts to the said issues, the scientific research in the field of transforming the global supply chains with due consideration for new challenges and threats still remains quite relevant.

Thus, the purpose of this paper is to consider peculiarities in the development of global supply chains at the present stage and ways to re-establish them.

Global supply chains are complex, fragmented, diverse but also very dynamic and evolving organizational structures [1]. It is known that a supply chain is an integral part of most entities, business complexes and economic systems as a whole, since it is of essential importance for business success, the customer need satisfaction and the growth of the public welfare as a whole. Such global supply chains shall be a reliable method to arrange investment, production and trade in the global economy. Many countries, especially developing ones, derive benefit from the participation in supply chains, thus, increasing employment opportunities for the economic and social development.

Nevertheless, it should be noted that the same supply chains can also have some inverse effect being detrimental to decent working conditions and causing economic wars and the deterioration of relations between countries.

As noted earlier, global supply chains have recently faced a global crisis. The reasons for complications and sometimes the collapse therein are as follows.

The first was the COVID-19 pandemic. The viral spreading, the closure of borders and the shutdown of factories followed by the global recession had a devastating effect on international trade and, consequently, on supply chains. In the second quarter of 2020 the global trade decreased by 18.5%. It has appeared to be a far sharper fall than the decline in the GDP. The pandemic has caused an extremely high demand for goods while the world's capability to supply these goods has faced some unprecedented challenges. Few links were retained in the global supply chain and some of them became a persistent object in media reports, such as widespread shortage of semiconductors. Even ports became a sort of bottlenecks for world trade, with lines of container ships waiting at major harbours. The dynamics in the extension of time for deliveries is shown in Fig. 2.

• Time of delivery in global chains
• Economic recovery
• Dynamics in compliance of supply chains

Figure 2. Decomposition of delivery times in global supply chains [4]

The continuing global logistics disruptions caused by the COVID-19 pandemic exert an adverse impact on entities and consumers to date, since the flow of consumer goods to key markets such as those in the North America and Europe, South-East Asia and India is limited by the continuing shutdowns of major global ports and airports, mainly in China, the South Korea and the United States.

The second is the cost-of-living increase. A rapid inflation rate made the household sector suffer from rising food prices. Anticipations that consumers would have to cut down their expenses led to the uncertainty in the demand for goods and services. Furthermore, it greatly hampered for supply chain planners to make the accurate estimation of quantities and types of goods to be needed by consumers. In their turn, major logistics disruptions create a ripple effect in global supply chains, thus, resulting after all in the accumulation of goods in warehouses; so, it adversely affects the shipping traffic by disrupting the schedule of the ships arrival at major transit hubs, thereby disarranging global trade flows and limiting the access of entities for importing products and replenishing their materials and stocks [5].

The third is the over-reliance on a limited number of third parties. Notwithstanding the risk associated with the orientation at “one major trading partner”, many companies maintain steady relations with one major supplier, one major customer (or an export market), and/or one major supply chain partner. Any difficulties occurring for this partner shall result in breaking the entire supply chain. As an example we may take the sanctions imposed on Russia by the international community.

Russia's dominance in the global supply of energy, industrial metals and consumer goods has already caused the price inflation in commodity exports to reach its highest level since around 1960. Furthermore, European supply chains are misbalanced and exposed to a constant risk of breaking because of the EU and UK ban for Russian ships to enter ports.

There should also be noted the following problems faced by companies in international logistics.

1. Labour shortage. The COVID-19 pandemic advanced the health and safety as the principal challenge for workers in all professions. The epidemic outbreaks in late 2021 and early 2022 made most of the staff members be quarantined. That problem resulted in overloading of other employees with work and severe understaffing of companies to handle the massive influx of cargoes. Local sanitary regulations also played a certain role in limiting the number of personnel. For example, China introduced the mandatory seven-week quarantine for returning cargo ship crews. That policy exacerbated even more the already increasing backlog in cargo handling.

2. Increased freight costs. 2021 was a very profitable year for container shipping companies. Alphaliner, the company engaged in shipping analysis, reported that the top ten publicly registered container shipping lines gained record-breaking profits in the amount of $115 billion to $120 billion. But the said record growth was due to high freight rates driven by the surge in fuel prices and the continuing shortage of shipping containers. The shipping of a 40-foot steel container by sea from Shanghai to Rotterdam today costs a record rate of $10,522, which is by 547% over the seasonal average figure for the recent five years. The cost of transporting goods from China to the UK skyrocketed by 350%. Such global events as the armed conflict in Ukraine, the blocking of the Suez Canal "Ever Given" disrupted the shipping lanes, thus, causing the cargo shipping along much longer routes [6].

3. Management of complex systems. The logistics sector is highly fragmented and requires the skilled management of numerous teams, services and networks. Since companies begin to expand their activities and markets, it certainly entails an increasing number of processes and the need to interact with other people being in different time zones. Transparency is vital and the supply chain crisis has showed how fragile some of these processes can be. Only 22% of companies have a proactive supply chain network.

The summary of the recent-year developments of global supply chains is quite precisely stated in the 2022 Council of Economic Advisers report: "Supply chains are currently efficient, but brittle and very vulnerable to breaking down in the face of a pandemic, a war or a natural disaster. Because of outsourcing and insufficient investment in resilience, many supply chains have become complex and fragile” [7].

In view of the foregoing, it is possible to formulate prospective solutions to available problems and lines for the development of international supply chains.

1. New trade agreements supporting an open trading system.  

2. Boosting domestic production through shift to near-outsourcing and offshoring.  

3. Easing transportation jams and creating new maritime hubs.

4. Prioritizing of public health.

5. Managing labour shortages.

6. Fighting anti-competitive practices.

7. Mitigating geopolitical tensions.

Thus, the challenge of improving global supply chains is in their multifaceted nature. There is no any cause which would improve the whole situation, because there are some major problems which interact in a complicated way with each other. In this regard, the development of global supply chains is a complex task covering all areas of socio-economic relations of modern society.

References:

1. Varnavskiy V.G. Global Transport-Logistic Infrastructure // Bulletin of the Russian Academy of Sciences. 2021. V. 91. No. 2. P. 157-166.
2. Fabri, Marcelus; Ramalhinho, Helena The in‐house logistics routing problem // International transactions in operational research. 2023. No 2; pp 1144-1168.
3. Golubev A.V. Problems of the Re-establishment and Development of Global Supply Chains under Economic Sanctions against Russia in the Post-pandemic Period // Economics and Management of the National Economy. 2022. No. 18 (20). P. 60-65.
4. Bernardino, Flávia Ferreira Marques The impact of socioeconomic, political and institutional factors on countries' logistic performance // World review of intermodal transportation research. 2023. Volume 11: Number 2; pp 188-210.
5. Seryapova I.V. Ways for Development of Transport Logistics under Sanctions // Economics and Business 2022. No. 9 (146). P. 1054-1057.
6. Examining the drivers of competitive advantage of the international logistics industry // International journal of logistics. 2022. Number 12; pp 1523-1541.
7. Shchegoleva N.G. Impact of the COVID 19 Pandemic on the Transformation of Global Value Chains // Problems of the Management Theory and Practice. 2021. No. 6. P. 6-22.