The picture went around the world: Hundreds of ships were backed up in front of the Suez Canal after the Ever Given accident. The incident was a lesson: It only takes one mistake – and countless global supply chains are at a standstill.
Raw materials are lacking, production processes come to a standstill, goods reach their destination with immense delays.
Such supply chain shocks can even endanger the energy transition in the long term: Green hydrogen, produced from green electricity, is considered indispensable in the fight against climate change.
For the chemical industry alone, for example, thousands of tons of ammonia produced with green hydrogen could be transported by tanker to be delivered from Australia. Functioning supply chains will therefore be a determining factor for the future hydrogen project.
Climate change, economic and geopolitical upheavals are contributing to supply chain shocks being more frequent, more widespread and unbalancing the global trade network, according to a study by the Potsdam Institute for Climate Impact Research.
After all, around 90 percent of all goods and goods worldwide are transported by sea.
In addition, transport capacities are likely to remain scarce in the longer term. The war in Ukraine plays a role in several respects.
Fuel costs have risen drastically, transport routes have become longer due to the relocation of supply chains around Russia, Belarus and Ukraine.
In addition, there are no truck drivers who take care of the inflow and outflow of containers in the ports.
And geopolitics could also cause turbulence again and again in the coming years: The share of global trade with countries that, according to the World Bank, are in the lower half of the global ranking in terms of political stability, has risen from 16 percent 2000 to 29 percent in 2018, according to a recent McKinsey study.
Supply chains should be diversified, transparent and green
The impact of supply chain shocks can be dramatic. In Germany, industry accounts for a quarter of the gross domestic product.
According to the study, disruptions to supply chains alone could cost companies almost 45 percent of their annual profits over a ten-year period.
The semiconductor crisis recently showed how serious supply chain shocks can have an impact along the entire value chain: it forced car manufacturers to stop production.
This affects the suppliers – with consequences for the chemical, electronics industry and all partners in the chain.
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The better the risk mitigation strategies, the more resilient companies are to supply chain shocks. A key factor in this: more diversified and sustainable end-to-end supply chains.
A clever balance of global and regional supply networks is worthwhile in several respects: Dependence on individual companies is reduced, unforeseen failures at one point can be compensated for at another point.
With a view to the planned supply chain law, it makes sense now at the latest to set the course for a supply chain that will meet the future requirements in terms of complete transparency right down to the last stage of the value chain.
And last but not least, “greener”, climate-friendly and resource-efficient logistics contribute to the expectations of customers and end consumers in terms of corporate responsibility.
Digitization makes transport more crisis-resistant
Whether this succeeds will ultimately also be a question of digitization. Innovative technologies challenge the mantra that resilience can only be bought at the expense of efficiency.
More and more companies are investing in digital infrastructure to connect the entire value chain in a seamless flow of data.
Supply chain analyzes optimize planning, procurement, production and sales while improving transparency along the entire value chain.
Virtual counterparts – so-called digital twins – allow products to be accompanied digitally through all stages of the value chain. Containers can be tracked worldwide in real time using track-and-trace methods.
The more complete this system is, the greater the production reliability.
Disruptions along the supply chain are detected more quickly, companies gain valuable time to compensate for failures and avoid impending production and delivery failures.
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The creation of digitized, sustainable and thus more crisis-proof supply chains is not only the responsibility of the economy. The European Union must also invest.
As early as 2020, the EU set the course for an industrial strategy that should support the transition to a green, digital economy and make Europe’s industry more competitive.
Supply chain dependencies are to be reduced with a strong domestic market and a diversification of international partnerships and industrial alliances.
In view of the strategic dependencies of key industrial areas such as the chemical industry on energy production, it is important to make faster progress in the various alliances.
Approval procedures must be accelerated and rail transport improved
Robust supply chains and green logistics also require massive investments in rail transport. Frequent construction sites and sluggish expansion repeatedly lead to delays in the supply chain. This is devastating for just-in-time industrial processes.
If the circular economy is to be implemented consistently, this also means a significantly increased volume of logistics: raw materials are prepared, processed, the new end product is transported to its destination – but please, sustainably.
Accelerated approval procedures and competition on the rails have the potential to give the infrastructure expansion much needed impetus.
Investing in resilient, sustainable supply chains will be crucial to Europe’s economic stability and the success of the energy transition. New approaches must not stop at the company’s own borders, it needs strong partners and cooperation.
Example of digitization: It is not enough to establish individual digital solutions. An industry with a broad logistics and supplier network can only work together effectively and guarantee reliable production if these are networked and standardized.
Supply chain shocks will remain the big unknown. But the degree of vulnerability of industries and production can be reduced, step by step.
The author:
Sucheta Govil is Chief Commercial Officer and a member of the Board of Directors of Covestro.
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