Supply Chain Problems Are Going To Get Worse

If you think the supply chain problems we've been suffering through now that the pandemic seems to be subsiding somewhat, think again. Not only is the pandemic still affecting production and shipping out of China, but the invasion of Ukraine and sanctions against Russia is now having a major affect on global supply chains. 

And it's going to get a lot worse.

More than a million containers due to travel to Europe from China by train—on a route that goes through Russia—must now make their journey by sea as sanctions bite. Russia’s invasion of Ukraine has also severed key supply lines for nickel, aluminum, wheat, and sunflower oil, causing commodity prices to skyrocket. Countries in the Middle East and Africa that rely on produce from Ukraine are likely to experience serious food shortages in the coming weeks and months. Some European automotive production lines have cut their output due to a shortage of wiring normally sourced from factories in Ukraine. If the pandemic, which triggered a surge in purchasing of goods, caused the global supply chain to buckle, Russia’s invasion of Ukraine and China’s continuing zero-Covid policy risk breaking it completely.

There's more in this report from Deloitte.

 It’s not just oil and agricultural commodities that are under stress. As Deloitte noted in a recent report, “The principal reason that Russia plays above its weight is that it is a major exporter of some of the world’s most important commodities.”1 Russia is a significant source of many of the 35 critical minerals that the US Department of the Interior (DOI) deems vital to the nation’s economic and national security interests, including 30% of the globe’s supply of platinum-group elements (including palladium), 13% of titanium, and 11% of nickel. Russia is also a major source of neon, used for etching circuits on silicon wafers. Palladium, a critical component of catalytic converters for cars, has climbed as much as 80% in price since the conflict started. Moreover, as a result of the Ukraine conflict, LMC Automotive has cut its forecast of light vehicle sales in Europe by 2 million units a year over the next two years.2

The interconnectedness of economies and businesses has both exacerbated the growing supply chain crisis and to some extent masked it. According to Dun & Bradstreet, there are fewer than 15,000 Tier 1 suppliers in Russia. Dig a little deeper, however, and there are 7.6 million Tier 2 supplier relationships with Russian entities globally.3 More than 374,000 businesses—90% of which are in the United States— rely on Russian suppliers. Now consider that in Deloitte’s most recent annual survey of chief procurement officers, while 70% believed they had good visibility into risks in their Tier 1 suppliers, only 15% had the same confidence about Tier 2 and beyond.

Finally, here's more from Forbes.

 The first type of supply chain risk derives from the fact that modern manufacturing requires the orchestration of an innumerable variety of inputs that are non-substitutable. In the last two years, the world has experienced a severe disruption in the semi-conductor sector due to factors ranging from shifting demand, labor shortages due to Covid-19-related lockdowns and even a drought in Taiwan.

The conflict in Ukraine is likely to prolong this on-going semiconductor shortage. Ukraine supplies more than 90% of the U.S.’s semiconductor-grade neon, a gas integral to the lasers used in the chip-making process. Russia, on the other hand, supplies 35% of the U.S.’s palla