Before Covid-19 struck, supply chains were a business area whose efficiency and reliability were often taken for granted. Investors, business leaders and consumers alike knew that they could count on fast, cheap and reliable delivery of goods from across the world.

Then the pandemic hit and countries in all regions started battling with product shortages and empty supermarket shelves, forcing industry leaders to do a lot of soul-searching.

Since then, the debate has focused on making supply chains more resilient and sustainable in case of future black swan events. Covid-19 was only the tip of the iceberg as other events such as Brexit in the UK, the Suez Canal obstruction, Hurricane Ida in the Americas and, more recently, energy shortages and rising inflation in the wake of the war in Ukraine also contributed to highlight the flaws in the system.

Topics such as reshoring and nearshoring – bringing supply chain operations closer to home to minimise disruption by unpredictable events such as the pandemic – have been at the top of governments’ and business leaders’ agendas.

Disruptive outlook for supply chains

To have a sense of why 2022’s first-quarter earnings calls analysed by Investment Monitor were so heavily dominated by discussions around supply chains, the charts below give a sense of the outlasting impact that disruptions have had on the sector.

The chart features data from IHS Markit’s Great Supply Chain Disruption report. It shows that between 2005 and 2020 the long-run average for product delivery was 1.

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As a result of the pandemic and the other geopolitical factors mentioned above, that average spiked to above 8 during the course of 2021.

“Delivery times lengthened significantly in 2021, and January 2022 began with many companies reporting severely constrained output, input costs rising faster than at any point in the decade prior to the pandemic, and the Omicron Covid variant causing fresh uncertainty,” wrote IHS Markit’s chief business economist, Chris Williamson, in the report.

“There is no recent historical precedent for the current disruption in the modern highly integrated global supply chain system that has developed over the past three decades," added vice-president Daniel Yergin. "What is unfolding in supply chains globally is not only disruptive, it is also historic. This is the first major disjunction in the synchronised supply chain system that has developed over the past 30 years of globalisation. Moreover, the intense new focus on inflation adds to the urgency to understand what is ahead for supply chains in 2022.

“Supply chains used to be something that only supply chain managers talked about. Now it is part of the profit reporting by major companies and a significant factor in inflation and, for some countries, in GDP [growth]. It is why consumers are experiencing delays in their online orders. And it resonates in anguished discussions ranging from retail shop owners to major manufacturers to disappointed customers to prime ministers and presidents.”

Another indication of the impact that disruptions to global supply chains have had across industries can be found in the level of global export values registered in the past two years.

The chart above shows that global exports have not yet gone back to pre-pandemic levels in 2021.

While global exports increased by $500m in 2021 from 2020, showing signs of mild recovery, the $7.5bn total recorded is still below the levels in the two years prior to the pandemic.

Supply Chain Vulnerability Index

Given the relevance that supply chains gained in the wake of the Covid-19 pandemic, GlobalData ran a network-wide week of targeted coverage and put together the Supply Chain Vulnerability Index 2020 collating export and import data for the year.

The index shows that the US emerged as the most vulnerable country to supply chain disruptions, while Germany came out on top in terms of resilience, closely followed by China.

“The Covid-19 pandemic has had a huge disruption in most industries,” said Investment Monitor chief economist Glenn Barklie at the time.

“Even before the pandemic, the US had concerns over its reliance on countries such as China. Nearshoring, and in particular reshoring, could help address the US’s supply chain issues as well as investment in its key industries and labour force.”

While the index identified the weaknesses and strengths across countries at global level, it did not proclaim winners or losers in the future.

China and Germany have certainly proven the most resilient countries to supply chain disruption, but that should not be taken as a guarantee that they will emerge as winners in 2022. 

Instead, experts are divided over the definition of winners and losers in this space, as more disruption is likely to continue throughout the year, with some arguing that China might even end up as a loser as issues such as forced labour and lack of attention to talent development are likely to play a pivotal role in the evolution of supply chains. 

Manufacturing bears the brunt of supply chain breakdowns

Perhaps unsurprisingly, the manufacturing sector suffered the most from disruptions to global supply chains over the past two years.

Data from the GlobalData FDI Projects Database shows that the number of greenfield manufacturing FDI projects slumped across sectors in 2020, with very few exceptions, the most notable of which being, for obvious reasons, medical devices.

The automotive sector was the hardest hit in 2020, with the total of new greenfield projects going from 467 in 2019 to 283 in 2020. Electronics (357 projects in 2019 and 300 in 2020) and food (417 and 327) were the next worst affected.

Both automotive and electronics manufacturing experienced a rebound in 2021, with 317 and 374 new greenfield FDI projects, respectively, while food manufacturing continued to slow with a total of 270 new projects.

It is hard to make predictions as to who will win the supply chain restructuring race. However, supply chains are now in the public eye like never before. No country, sector or company can afford to stand still when it comes to supplies, and those that do will likely see their FDI performances and/or profits take a hit.

This article is part of a series focusing on FDI drivers that are rising in importance in the post-Covid environment. The full list comprises:

  • Supply chains
  • Digitalisation
  • Conflict
  • Inflation
  • ESG