A view from London

The World Bank’s measure of supply disruption, which gauges delays at ports and in shipping cargoes, tells a similar story. Though down from January’s peak, the Bank’s supply chain stress index is running well above normal levels.

Global shipping continues to face problems. Despite a ceasefire between the US and the Houthi rebels in Yemen, many shipping companies are avoiding the Suez Canal and the Red Sea and are taking the longer route around the southern tip of Africa to travel between Asia and Europe. Since Russia’s invasion of Ukraine, the Black Sea has become one of the world’s most hazardous shipping routes with vessels sometimes braving naval mines and missile strikes. Traffic through the Panama Canal is subject to water levels, which, though improving, are below historical averages.  

Modern supply chains, running on thin inventories, were predicated on forecastable fluctuations in supply and demand and on a peaceful world. It is no coincidence that the growth of international supply chains coincided with a period, from the early 1980s to 2008, of rapid globalisation and unusual economic and political stability. Today’s systems were not designed for the sort of volatility that seems to have become the norm. Supply chains are having to adapt.

New terms – ‘reshoring’, ‘nearshoring’ and ‘friendshoring’ – describe how companies are repatriating production or moving it closer to home or to friendly countries, particularly in sectors such as energy or technology, deemed to be of strategic importance. Western governments are seeking to raise local microchip production and diversify sourcing of rare-earth minerals away from China. Tariffs provide an additional motivation, as was seen with Apple’s decision to shift production of its iPhone for the US market from China to India.

Threats to supply are causing some businesses to reassess the balance between efficiency and resilience. Greater volatility and risk put a premium on security of supply, perhaps by diversifying suppliers, bringing them closer to home or by running higher inventories. For some companies speed of supply matters at least as much as security of supply. A survey of 500 US companies by the Reshoring Initiative released last month found that 43% of respondents would be willing to pay 10% to 20% more for products that could be delivered within one week as opposed to six.  

A drive for greater autonomy and diversity of supply is creating new opportunities in sectors including energy, defence and technology. The decision by western governments to block Huawei from working on Europe’s 5G network has created demand for other suppliers including Ericsson, Nokia and Samsung. In the UK BAE has raised production of artillery shells, reducing the UK’s reliance on imports. Last month a Bank of America report found that reshoring had led to the creation of two million new US manufacturing jobs in the last 15 years, most created in the last five years.

Reconfiguring supply chains for a riskier, more fractured world will take time. Whether it is possible to reconcile security of supply with the competitive prices and wide choice that consumers have come to take for granted remains to be seen.