The supply chain year of re-modelling, responding and re-routing

Photo: © Chris Warham | Dreamstime.com

This year began with war still raging in Ukraine, but as 2023 enters its final days it is to the Red Sea that supply chain heads turn after a series of attacks on box ships.

Summing up the theme of the past 12 months, one may quickly pull towards “war”; and it is easy to see why, given that, together with 2022’s Russian invasion of its neighbour and Israel’s all-out assault on Gaza, these headline conflicts are joined by the forgotten war in Sudan.

But in reality, in supply chain terms anyway, one would be better encapsulating 2023 under the banner of “re-routing”, whether that be ships around Africa, trains bypassing Russia or manufacturing moving out of China.

Certainly, conflict – both the hot form in Gaza and Ukraine and the simmering conditions of the trade stand-off between the world’s two largest economies – engendered moves to re-route supply chains, but it was the response to those conflicts that caught the attention.

At The Loadstar, many discussions with sources (named and unnamed) contended that while Covid brought much despair, it helped condition logistics personnel to tackle multiple crises. And in this way, it provoked both swift response and capitalising on opportunities thrown up by crisis.

Take the ostracisation of Russia by western-dominated global trade as a case in point. Recognising ongoing demand for rail freight, it was the Caucasus countries, like Kazakhstan and Turkmenistan, striking while the iron was hot, offering themselves as alternative routings.

Reporting on its first half performance, Kazakhstan’s KTZ Rail said volumes had increased by a whopping 86% year on year, as shippers sought alternative connections between China and Europe, and the country’s exports experiencing a 250% increase.

Much of the growth was driven by a remodelling of supply chains away from Russia and towards the Middle Corridor.

Such speed at taking the advantages saw operators in central Asia strike deals with both sides of the sanction-divide, as Russian shippers and carriers were also forced into reorientation and a turn eastward in search of viable markets.

These moves have not been all bad though, with China-Russia rail freight volumes continuing to climb after last November’s opening of the Nizhneleninskoye-Tongjiang bridge.

Of course, while China-Russia growth may have increased, chief carrier Russian Railways reported marginal overall gains of 0.1% year on year, indicating weak improvements against the tough 2022 and the invasion of Ukraine.

Getting off the tracks and into manufacturing, US president Joe Biden has certainly sought to deliver on a pledge for America to “make shit again” – although this quote’s veracity remains uncertain.

That agenda is being actioned by a model, dubbed “Bidenomics” by his own team, intended to lower costs for American families and ensure they get the products “they need, when they need them”, while concurrently supporting good-paying, domestic union jobs.

And it is premised on the Inflation Reduction Act (IRA), seen by many as a spur to growth in US electric vehicle production, with a focus on the ‘local’ at the expense of the ‘international’.

While many have questioned how productive the IRA will be, it seems to have spooked the Chinese, premier Li Qiang having taken to the platform of a summit in Beijing to urge the international community to rebuff “the rise of global protectionism”.

For US business leaders, the IRA’s incentives to return home, or perhaps its disincentives to stay away, seem to have worked.

According to June’s annual US-China Business Council survey, 35% of respondents said they had cut or paused Chinese investments this past year, up from 22% in 2022, with 73% citing increased costs and uncertainties over US tensions.

American business is also voting with its feet: 61% of those polled by the Department of Commerce’s office of textiles and apparel said China was no longer its top supplier.

But the surprise attack by Hamas militants against southern Israel on 7 October left room for a third reorientation, with the subsequent invasion of Gaza by Israeli forces engendering local resentment against global shipping. That spilled over with an escalating number of attacks by Iran-backed Houthi militias against ships transiting the Red Sea.

Seemingly with little recourse or capacity to avert the attacks, the biggest carriers in the world announced they would suspend services running through the Suez Canal and into the Red Sea.

The result? Re-routing, with the likes of Hapag-Lloyd and CMA CGM confirming they would send their ships around Africa, adding a further two weeks, extra costs and extra emissions to voyages.

And one further re-route might be carriers’ 2024 forecasts, with spikes in spots and surcharges expected…