To say that the COVID-19 pandemic has affected commerce worldwide would be an understatement. It’s now been almost a year since China enacted the first quarantine restrictions, and most companies are still grappling with the pandemic’s effects. Every industry has felt the impact of COVID-19, but the global supply chain has experienced more hardship than most.
The pandemic’s impact on supply chains can reveal ways to prevent future disruptions. With that in mind, here are seven ways COVID-19 has affected the global supply chain.
1. International Plant Shutdowns
As the world’s leading manufacturing hub, China lies at the heart of many supply chains. When the COVID-19 outbreak started, Chinese factories were the first to shut down, followed by nearby nations. It slowed or even stopped many supply chains, even in areas that hadn’t seen a COVID outbreak yet.
With Chinese production coming to a halt, supply chains had to scramble to fulfill orders, often falling short. Offshore sourcing made a lot of sense before the pandemic, given its affordability. It’s now evident that this strategy can lead to global disruption from local events.
2. Travel Restrictions
Even as production began to ramp up again, supply chains still faced complications with international shipping. As fears over contamination from other countries rose, travel restrictions grew across the globe. By May, only three nations didn’t have any constraints over international travel.
Cargo doesn’t ship itself, so many companies faced supply chain disruptions from these closures. While travel restrictions rarely banned shipments in their entirety, they often slowed the process with quarantine measures and medical checks.
3. Reduced Warehouse Capacity
In most countries, governments enacted building capacity restrictions to help slow viral spread. With limited capacity, warehouses couldn’t operate at their pre-pandemic levels of efficiency. As a result, the global supply chain slowed.
These capacity limits weren’t strictly an international problem, either. In the U.S., new case numbers reached 200,000 a day in November, causing many states to tighten restrictions. With cases still climbing in many areas, it could be a while before warehouses are up to pre-pandemic productivity levels again.
4. Changing Consumer Demand
Not all of COVID’s effects on the global supply chain were so direct. One of the most impactful indirect ramifications of the pandemic was changing demand. As the world adjusted to the pandemic, need for some items dropped, while other areas skyrocketed.
For example, disinfecting wipe sales rose 100% in the first three months of 2020, while cosmetic sales fell 25%. These drastic changes led to supply chain bottlenecks and shortages. Many companies had issues addressing them, too, as production and shipping slowed.
5. The E-Commerce Surge
As brick-and-mortar stores closed and people grew concerned about in-person shopping, e-commerce escalated rapidly. E-commerce sales rose 32.4% over 2019 levels, more than double their growth between 2018 and 2019. This demand translated into increased strain on supply chains for e-commerce sites.
Supply chains that were already struggling to cope with reduced staff and disruptions suddenly had to meet higher needs, too. Amazon couldn’t fulfill its two-day Prime shipping offering on some orders due to this surge.
6. Rising Cargo Rates
With nearly every nation enacting travel restrictions, shipping rates rose during the pandemic. Airfreight rates rose to $5.66 a kilogram for flights between Hong Kong and North America in May. That’s almost five times what they were in January.
While cargo rates have declined since that May peak, they’ve yet to return to pre-pandemic levels. This trend will likely dissipate with the pandemic, but some supply chains may shift away from international sourcing before then.
7. Economic Nationalism
Many of these impacts of COVID on supply chains have influenced a trend that will likely outlast the pandemic. Companies have lost faith in the global supply chain. Disruptions tied to international sourcing and travel have made many wary of long, complex supply chains.
These disruptions, along with a mounting trade war between the U.S. and China, will likely lead to a preference for domestic sourcing. While reshoring isn’t the only answer to these issues, economic nationalism will grow regardless.
The Global Supply Chain Won’t Be the Same After COVID-19
The pandemic has exposed where the global supply chain falls short. While this translates into falling profits for companies now, it will lead to improvements in the future. If businesses learn their lesson, supply chains will become more flexible, transparent and resilient in 2021 and beyond.