The Supply Chain Crisis — and Opportunities — ExplainedBy Felipe Sanmiguel | Tue, 04/26/2022 - 09:00
After two challenging years of the COVID-19 pandemic, most had predicted stabilization in international trade and a return to what some would call a new normal by now. However, the disruption of global supply chains persists, and with it comes opportunities and challenges for exporters and communities at large. In this article, I will discuss some of the conditions that have resulted in the current state of affairs, recommendations on how North American exporters can mitigate the risks they are facing in this environment and how businesses can take advantage of the opportunities that have emerged.
The Origin of the Global Supply Chain Crisis
By definition, a resilient supply chain has the ability to resist the impact of voluntary disruption (a result of governmental actions) or involuntary disruption (such as the COVID-19 pandemic) and the ability to quickly recover. This is important because COVID-19 is no longer seen as the only trigger of the global economic situation and resulting supply chain challenges that the world is facing. In fact, for over a year, business owners have been reporting that supply chain challenges are also a result of increased consumer demand, natural disasters, extreme weather events, political issues, cybersecurity, and the financial crises the world has witnessed in parallel to the pandemic.
One of the key points to consider is that the global supply chain crisis is the result of the manufacturing processes that companies all over the world have adopted over the past few decades in the name of customer centricity and increased productivity. The growing interdependence between the world's economies through globalization has worked well for decades but the recent disruptions have confirmed the harsh reality that supply chains as we know them are struggling to adapt. Government regulations that forced millions of manufacturing workers to stay home as a response to COVID-19, created labor shortages that continue to exacerbate the ongoing crisis, especially in manufacturing hubs around the world, such as Southeast Asia.
At the same time, the supply chain crisis has been driven by backlogs that have affected the global shipping industry, given labor shortages at major hubs that have witnessed port congestions, ship backlogs, lower turnaround time and rising operational costs.
To better understand the current state of supply chains around the world and the impact it has had on international trade, Export Development Canada (EDC) recently hosted a webinar that dives into the nature of the global supply chain disruptions and the ensuing opportunities for businesses willing to tap into them.
Mitigation Options: Supply Chain Resilience and EDC’s Solutions
As discussed in the EDC webinar, a key way for companies to minimize disruptions to their own business is building a resilient supply chain. What does this mean for exporters and countries alike? The importance of relying on one’s own productive apparatus or that of countries that are geographically close in order to reduce vulnerabilities associated with single-source dependencies and excess concentration in a region or supplier. Equally, engaging multiple suppliers, and in different locations, can help to reduce the risk of localized issues impacting the supply chain. Finally, bringing supply chain operations closer to home can also help to minimize disruption.
This is where the idea of nearshoring – where suppliers are located close to, but not in, the destination market – starts to gain importance for North America as an alternative to reorganize global trade. Under the idea of nearshoring in North America, manufacturers and suppliers would operate closer, relying less on globalized logistics. This could help minimize supply chain risks and to adapt to current global market changes.
EDC’s unique suite of solutions have helped Canadian companies navigate the current crisis, offsetting the risks of doing business abroad, financing deals, and accessing working capital.
Nearshoring: North America’s Opportunity
There are tremendous opportunities for countries like Mexico and Canada to become the axis of a strong manufacturing hub in North America to reduce the dependency on Asian suppliers and the unpredictability of global supply chains. This has led to discussions among experts and international companies about the potential of nearshoring as an alternative solution to supply chain risks.
In the case of Mexico, one of Canada’s longtime trading partners, EDC has observed a powerful trend toward automation and data exchange within the country’s manufacturing sector since the inception of the North American Free Trade Agreement (NAFTA) in 1994. To remain competitive, Mexican businesses will have to lean into opportunities presented by Industry 4.0, as my colleague Jorge Rave had suggested in his 2021 editorial opinion.
At the same time, EDC’s Global Trade team indicates that Canadian innovation is beginning to play a significant role in the North American manufacturing ecosystem. In fact, Canadian firms are industry leaders in advanced manufacturing and are proven allies when it comes to exporting and implementing advanced technologies. This suggests that the region is ready to play a significant role to help build supply chain resilience.
The recent supply chain disruptions present vast opportunities for companies willing to tap into them by adapting their current supply chain structures and bringing processes closer to home. Nearshoring offers a great opportunity for countries like Mexico and Canada to become pillars of a strong manufacturing hub in North America, reducing the current dependency on Asian suppliers and the need to navigate through the complexity of globalized logistics, thus minimizing supply chain risks.