After a series of disruptions from the COVID-19 pandemic, ongoing geopolitical conflicts and now a historic year with more than 60 countries holding elections, supply chain managers are facing a growing number of challenges.
“I would actually say we’re in a new era,” Marissa Adams, head of Global Trade Solutions at HSBC America, told Yahoo Finance in a video interview. “I don’t think there’s any normalization yet. I think companies are now dealing with the fact that supply chain disruption is the new normal.”
Supply chain disruptions have always been a part of global trade, even since the Silk Road, which connected trade routes in Europe, the Middle East and Asia. However, companies in today’s market are more exposed to unexpected global events, which impacts their ability to trade effectively.
There are several factors putting pressure on global supply chains this year, according to a new report from HSBC. Products and global supply chains are more complex than ever before, and suppliers must secure financing in an inflationary environment.
There are also specific problems in certain geographic regions that cause ships to change their routes, such as the attacks in the Red Sea and the drought affecting the Panama Canal. And globally, more than a quarter of the world’s population will go to the polls this year.
“One of the things is certainly that trade will continue to be an important issue during the campaign,” Adams said, adding: “Some of that is due to protectionism, nationalism, [and] other points of interest.”
A holistic view of supply chains
According to Adams, the COVID-19 pandemic has shaken up companies exposed to geopolitical incidents and other vulnerabilities. Previously, companies structured their supply chains to focus primarily on reducing costs and improving the bottom line, Adams said.
“We came from a world where goods were ‘just in time,’ and now we’re looking at people going ‘just in case,'” Adams said, “and that has really changed the balance sheets of a lot of companies.”
Supply chain strategies evolved to account for these new challenges as companies began moving operations closer to home, increasing safety and working to reduce delivery and shipping costs.
“The first thing companies can look at is taking a real, deep dive into their supply chain,” Adams said. “Where do they see risks? Are there certain suppliers they are focusing on, or are there countries where there is potentially more risk involved?”
Adams also offered guidance on managing relationships with the Chinese business community amid the Biden administration’s recent increased tariffs, noting that companies should view potential risks holistically rather than on a country-by-country basis.
“Supply chains are complex, and even if things are produced here in the United States, there are a number of different components that are produced in Asia, in Europe and in other markets around the world,” Adams said. “What we try to talk about with our clients is that we 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 how supply chain issues could impact investors’ portfolios, Adams pointed to three signs investors should look out for.
First, she said, keep an eye on senior leadership strategy. Does the CFO regularly talk about the resilience of the supply chain? Are they focused on both risk and cost?
Second, how concentrated is the company in key sectors and markets? For example, much of semiconductor manufacturing takes place in Taiwan, but many companies are trying to bring these operations to the US, which would take time.
Finally, Adams noted that investors should evaluate a company’s infrastructure investments and whether the company is investing in its supply chains in a diversified manner to avoid unnecessary risks.
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