31 May 2024 -
 Industrial

Supply chain reshuffle – politics, risks, and climate change

reshoring

The once-lauded era of hyper-globalisation is facing a reckoning. Mounting geopolitical tensions, the escalating climate crisis, and shifting demographics are forcing businesses worldwide to reassess their reliance on sprawling, interconnected supply chains. A recent survey by Allianz Trade reveals that over half of the companies surveyed are contemplating relocating parts of their production networks due to these growing risks.

The United States, under President Biden, has further amplified these concerns by slapping hefty tariffs on Chinese imports, including a 100% levy on electric vehicles. This move, coupled with disruptions in critical trade routes like the Red Sea, is exposing the vulnerabilities inherent in globally dispersed supply chains. With global trade growth projected to fall below its historical average, businesses are bracing for further turbulence.

“The political landscape, with elections taking place in economies that account for close to 60% of global GDP, is contributing to rising geopolitical risks and increasing uncertainties,” notes the Allianz Trade report. While the upcoming US elections are a focal point, with potential ramifications for tariffs, businesses are also keeping a wary eye on the broader global political climate.

The urgency to diversify and fortify supply chains is particularly acute in the clean energy sector. The International Energy Agency’s dire predictions of a critical minerals shortage underscore the fragility of the supply chain for essential components like batteries, crucial for electric vehicles and energy storage systems. As Ivan Williams, CEO of CarbonScape, puts it, “The clean energy transition cannot happen without critical minerals.” He further warns that the IEA predicts future demand for these minerals will far outstrip supply, potentially slowing the adoption of electric vehicles and renewable energy.

In this evolving landscape, companies are exploring a range of strategies to mitigate risk and ensure resilience. “Friend-shoring,” or relocating operations to allied nations, offers a potential solution, but it hinges on the stability of geopolitical relationships. Nearshoring, moving production closer to home within the same region or continent, is gaining traction, particularly in Europe, where Eastern European countries like Poland are becoming increasingly attractive due to their strategic location and logistical advantages.

Reshoring, or bringing manufacturing back to the home country, is also gaining momentum, particularly in the UK, where 58% of manufacturing firms are reportedly reshoring their supply chains, according to Medius. This trend is mirrored globally, with Taiwanese semiconductor suppliers expanding into Europe, driven by government incentives and a desire to capitalise on the growing demand for advanced chips. Notably, the rush of global chip manufacturers expanding production in Europe is spurred by incentives from the European Chips Act, which aims to attract €43 billion in industry investments, aligning with similar government-backed efforts in the U.S. and China.

While each of these strategies has its advantages, they also present challenges. Nearshoring and friend-shoring require navigating complex geopolitical landscapes, while reshoring may entail higher labour costs and require significant investment in domestic infrastructure. However, as Alex Frei, CEO of NeoWay, aptly states, “The decision to reshore is not solely driven by cost considerations. It’s about securing the supply chain and ensuring a reliable source of critical components.”

The benefits of bringing production closer to home are substantial. Reshoring and nearshoring can improve supply chain transparency, quality control, and lead times, as well as bolster resilience against disruptions. They can also stimulate local economies, create jobs, and provide greater control over working conditions within the supply chain.

As businesses navigate this new era of supply chain management, a data-driven approach is crucial. According to Reichelt Elektronik’s latest supply chain report, 92% of companies view supplier diversification as a core strategy, with 84% switching to local suppliers. This highlights the growing importance of establishing strong relationships with a diverse range of suppliers, particularly in light of the increasing volatility and uncertainty in global markets.

The global supply chain is undergoing a profound transformation, driven by a confluence of geopolitical, environmental, and economic factors. While the path forward may be fraught with challenges, companies that embrace these changes and adapt their strategies will be best positioned to thrive in this new landscape.

Astute 3PL delivers Complex Supply Chain Solutions and procurement services to customers who need fully managed products and services delivered into their production phases. We provide material management and supply chain solutions across multiple locations worldwide, meeting the diverse needs of our clients. We work alongside local production companies to ensure we deliver a solution that meets national expectations, e.g. Made in USA, Made in Australia.

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