Based on some skeptical feedback to my post about how our global supply chains actually worked pretty well through the pandemic, I began wondering if the real issue here revolves around our definitions of "global supply chain" and "failed." For example:
- My view of "global supply chain" is that it specifically refers to the complex web of logistics for turning a given set of inputs into finished products and then getting them to customers. It doesn't refer simply to shortages of those inputs, since it's trivially obvious that almost any manufacturing system will produce fewer finished products if its supply of inputs declines.
- A different take might emphasize that we have chosen to rely heavily on more and more inputs (oil, semiconductors, grain, etc.) in individual products, which makes them vulnerable to shortages of more things. In the past, for example, cars didn't use semiconductors. Now they do, so a shortage of semiconductors affects the supply of cars. This reliance on so many different inputs makes the supply of finished goods more fragile.
- Yet another take might argue with my narrow definition of supply chains, expanding it to include forecasting, financial speculation, OPEC policies, and so forth.
- Finally, there's the definition of "failed." A huge and sudden pandemic that shuts down production all over the world will obviously affect the supply of finished goods. But how do we measure this? By shortages of consumer goods? Total global trade? Increased prices? And even if we agree on metrics, how do we decide if our current system performed better or worse than some other system?
The simplest metric of "global supply chains" is the global level of trade. A good system keeps trade humming, while a bad system is fragile and vulnerable to unexpected external shocks like a pandemic. Here are the biggest negative trade spikes in recent history:
The drop due to the pandemic isn't a big one. It ranks #9 among the biggest spikes due to economic downturns.
But here's another interesting thing. A related measure of how well our global trade system is working is its ability to rebound. For each year, here's a ranking of how well the next year fared compared to two years previously:
The pandemic year of 2020 is pretty good. Trade may have been down compared to 2019 (top chart), but it rebounded and by 2021 trade was up about 14% compared to 2019 (bottom chart). Our supply chains recovered in very short order, which suggests a considerable resilience, not fragility.
This is not a slam dunk analysis. It would be nice to have some measure of shortages, but it's hard to imagine how you could calculate that in any kind of rigorous way. Nonetheless, basic trade data suggests that our global supply chains worked pretty well in the face of an enormous challenge.
POSTSCRIPT: There is one other thing to consider. US demand for goods spiked upward last year, and the result has been clogged ports, a shortage of transportation, and jammed warehouses. This speaks well for global supply chains, which are producing goods in huge quantities. However, it also shows that American supply chains aren't able to cope with even a 5-10% increase in goods. That's a problem, but don't conflate it with a global trade crisis.
The simplest metric of "global supply chains" is the global level of trade.
I reckon these numbers are reflective of overall economic activity (trade decreases during global recessions) and/or the price of oil than they are reflective of the health of supply chains.
Since this is a US based blog, most readers will assume that the "our" in "our global supply chain" indicates the US global supply chain. The message seems to be that US supply chain is still struggling with the recent displacement, though it has been recovering. A naive metric of "how good" a supply chain is should be based on the likelihood of an order being fulfilled with what one has ordered in the usual and customary time.
Maybe we had all gotten spoiled, but for quite some time, we had an extremely reliable global supply chain. If you placed an order, the odds were very good that the items would arrive in a predictable time, format and quantity. In 2020 particularly, this was not the case. In 2021, things were much better, but there were still a lot of supply chain problems. So far, in 2022, things seem a lot better, but some of that has been about changed expectations.
As with many quality issues, it isn't about quantity. Every last order could be fulfilled and then some, but if it doesn't come in full quantity and when expected, then there is a quality problem. If a product was usually delivered in a certain time period, but now that time period is longer, that is another quality problem. This isn't just about consumer quality. It is also about producer quality, especially since so much production has been restructured around having a very high quality supply chain.
Remember there are entire counties in this nation that utilize wooden electric poles and gravel for roads...
The pandemic was unusual. Other economic crises typically ended up in demand side collapse. Here, it was a supply side collapse--they stimulus packages did their job--or a demand surge? And by supply side collapse, a lot of it was that companies couldn't switch packaging and the demand shifted, e.g. farmers were dumping milk while store shelves were bare. There were also regional lockdowns that would close factories, etc., which actually did not knock some supply off line, as did the Texas freeze (chip FABS went down).
Since we import a lot of stuff, the US stimulus stimulated the world.
Every stage of the supply chain has been fine tuned to be just-in-time, including our expectations as consumers, and when one tiny thing changes along the way there are ripple effects all the way to the end consumer who has become accustomed to being able to obtain anything exactly when he or she wants it. Small delays and shortages become magnified because so many components go into the product before it reaches the end consumer. When you go to buy a new car and they take your order for next-year delivery it is because a half-dozen critical things weren't available at the correct moment to keep everything working properly. I picture it like a giant loom bringing together threads of supplies from all over the world and eventually weaving together an intricate piece of cloth. If you're missing six threads it gums up the whole works.
Lacking time, some points.
1. What we saw were global supply chain disruptions. Did anyone say they failed? The ebb and flow of chain disruptions align with pandemic mitigation ebb and flow. I don't understand this horse you've attached to.
2. Part of how supply chains got revitalized was through higher costs and profits. IKEA chartered its own ships to get its goods to stores. Maersk's (specifically) profit margins soared through 2021.
3. These disruptions have further nudged every part of the supply chain towards automation, in order to limit disruptions and the cost of those disruptions. Port and delivery automation will be big battles waged in the US over the next 5 years.
If there was a problem with either global or U.S. supply chains, why wasn't I affected?