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Shipping Attacks, Greedflation and ABC Make Resiliency Even More Difficult in 2024

Good things come in threes. So do bad things – like supply chain disruptions.

  1. Yemeni rebels have said happy holidays to global supply chains by firing drones and missiles at Red Sea cargo ships. The attacks continue, and some shipping companies are suspending operations in the area.
  2. The largest analysis of greedflation to date confirmed that some corporations took advantage of supply chain disruptions to fatten profit margins beyond higher operating costs.
  3. And continued trade conflict between Western nations, principally the U.S. and China, has many corporations looking elsewhere to source. Where? ABC – anybody but China.

Just more fuel to fire our profession’s continuing struggle to redesign supply chains and deploy optionality in the face of globalization and deglobalization. Optionality – multiple sourcing for key products, parts and raw materials – can keep your enterprise serving customers through the next set of disruptions.

Blowing Up International Trade Routes

The Houthi rebel group in Yemen has been threatening Red Sea shipping for a while. This NBC News video shows gunmen hijacking a cargo vessel last month. Last week, attacks escalated with missiles and drones.

Reuters News reports that MSC, the world’s biggest container shipping line, Taiwan’s Yang Ming Marine Transport Corp., Norway’s oil tanker group Frontline and other companies are rerouting ships. Oil giant BP followed suit, according to The Washington Post.

Ships that risk the suddenly violent hot spot will pay more for insurance. Those that avoid the Suez Canal will spend an extra eight to 12 days sailing around the southern tip of Africa.

Either way, the impact on global trade is significant.

Approximately 12% of global trade traverses and 30% of global container traffic traverse the Suez Canal, which can handle $10 billion of shipping a day.

The disruption means delays or higher costs for boatloads – literally – of oil and other hydrocarbons, grain, commodities, consumer goods and everything else.

Inflation vs. Greedflation

As inflation skyrocketed over the last couple of years, most analysts – including me – blamed supply chain disruptions.

Disruptions included the pandemic shutdown, trade wars and tariffs, shooting wars, the threat of shooting wars (China vs. Taiwan), the Panama Canal drought and the drive to friendshore and nearshore.

Now, the biggest study to date has added greedflation to the mix.

What is greedflation? Corporate decisions to jack up prices beyond increased input and operating costs.

True, most companies did not engage in greedflation, according to the study by the Common Wealth think tank and the Institute for Public Policy Research. The researchers attributed 90% of profit increases in the U.K. to just 11% of publicly listed firms. In the United States, one-third of publicly listed firms were responsible for most of the increase in profits.

These excess prices reverberate through your supply chains, increasing your costs. That adds to cost increases that can come with the pressure to source ABC – anywhere but China.

Sourcing Anywhere But China

Politicians and consumers have been pressuring companies to rely less on China for much of the last decade.

The United States targeted China and other nations with a barrage of tariffs. China has responded with export restrictions for key materials, along with targeting companies operating in country.

More and more, I’m seeing brands come to Tompkins Ventures with the request to source anywhere but China.

Make no mistake, trade with China is not ending. In fact, U.S.-China trade set all-time records last year, according to CNN. But U.S. trade with other countries, notably Mexico and Canada, is growing faster.

Finding other sources is a challenge. But it’s possible. After all, you have the entire globe to search.

For example, Walmart is ramping up sourcing in India. The retail giant aims to import $10 billion worth of goods from the subcontinent by 2027, according to Supply Chain Dive.

The thing that impressed me about Walmart? The raw materials for its Hero Ecotech bicycle are 90% sourced from India.

So many think that redesigning your supply chain means moving final assembly from one country to another. That is beyond wrong.

Redesigning your supply chain includes your raw materials, part production, finished goods – everything.

2024 Forecast: More Disruptions

Don’t expect the New Year to bring any relief. I think the biggest 2024 trend will be the drive to redesign supply chains with an eye to nearshoring, friendshoring and even reshoring. Only true optionality will result in supply chain resiliency.

Because even if attacks on shipping and greedflation diminish, global brands are looking to find options beyond China. That political and consumer pressure is with us to stay – along with whatever other disruptions pop up.

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