European risk managers must brace for further supply chain challenges in 2023

Europe’s risk managers must prepare for further serious supply chain tensions in 2023, with those in the automobile, aviation, medical, electronics and food and beverage sectors facing the biggest challenge, according to Netherlands-based logistics firm Hubs. The main supply chain risks to watch out for this year will be a worsening of the China-Taiwan crisis, which could exacerbate the global semiconductor shortage, and continued worldwide port congestion, says Hubs in its 2023 supply chain resilience report. Inflation will also disrupt supply chains by causing uncertainty in demand, a surge of Covid-19 cases in China may hamper manufacturing capabilities, and new carbon emission regulations could lead to slower movement of goods, adds the logistics firm. “As we move into 2023, many of the supply chain challenges experienced in 2022 will likely stick around or even escalate. To make matters trickier, there may be other disruptive events on the horizon,” says the firm in its report, based on a survey of 334 European and global companies. “Escalating tensions between China and Taiwan have raised concerns about a military conflict in the region. This could destabilise Asia and have serious consequences for global supply chains. Taiwan is a leading producer of semiconductor chips – disruptions to its production capability could further exacerbate the global chip shortage and impede the production of smartphones, computers, vehicles and electronic appliances,” says Hubs. In addition, port congestion will continue to be a serious supply chain problem, warns the logistics firm. “Global shipping delays initially triggered by the Covid-19 pandemic and subsequently aggravated by the Suez Canal blockage and the invasion of Ukraine are expected to continue into 2023. Barring any other unpredictable obstructions or major labour disputes, port congestion and the consequential higher shipping rates are expected to improve gradually as early as Q2 2023,” says Hubs in a more optimistic tone. Inflation is causing all sorts of problems for Europe’s risk and insurance management community currently and will continue to negatively impact supply chains, predicts the firm. “With inflation at its highest in three decades and the cost of labour, materials, energy and transportation rising, supply chain costs are also rising. These higher costs are reflected in commodity prices, and as the cost of living increases, consumer behaviours and demands change. A rigid supply chain can collapse if it can't adapt to uncertainty in demand. Inflation also comes with other risks, such as labour strikes and a greater chance of bankruptcy, which can disrupt trade networks,” comments Hubs. It is tricky to work out what is really happening with Covid-19 in China currently as unofficial news of surging cases massively contradicts what the government is saying. But Hubs says it is safe to assume that a surge of Covid-19 cases in China could seriously hamper manufacturing capabilities and further hit global supply chains. “China's enduring zero-Covid policy and an increase in outbreaks in various cities led to a number of major lockdowns in 2022, which has impacted supply chains. A lockdown in Zhengzhou in November 2022, where Apple operates its biggest iPhone production facility, caused delays for Apple customers around the world. As long as the country's Zero Covid policy is in effect, supply chains are susceptible to sudden disruptions due to factory closures or capacity reductions,” states Hubs. And new carbon emission regulations may further clog up the movement of goods, it warns. “New regulations designed to curb carbon emissions may lead to slowdowns in shipping speeds. As instructed by the International Maritime Organization, cargo ship operators must monitor and decrease emissions in 2023. In order to meet their emission targets, older cargo ships will either have to be upgraded or cruise at 10% slower speeds. The decrease in transport speeds is expected to create supply chain lags,” states Hubs in its report. The survey, carried out in November last year, found that 76.6% of companies experienced some form of external disruption to their supply chain in 2022. This is a higher percentage than in similar surveys conducted in 2020 and 2021. Material shortages was the top challenge last year, affecting 60.9% of participants. Some 49.4% of respondents reported facing material shortages more often in 2022 compared to 2021. Covid-19 was the second biggest cause of disruptions, affecting 57% of companies last year. Other significant concerns among survey respondents included rising energy costs, logistics issues, container shortages, port congestion, natural disasters and trade wars. The automation and robotics industry was the most affected by supply chain disruptions, followed by the electronics and medical corporations.

European risk managers must brace for further supply chain challenges in 2023

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