There are signs Asia’s supply chain challenges are starting to heal

The news: There are signs that the Asia supply chain snarls that have upended retailers’ operations throughout the pandemic are starting to ease, according to Chang Shu, Bloomberg’s chief Asia economist.

• For example, supply delivery times shortened in May relative to April. Those times were roughly on par with March 2020 and are expected to improve more in June due to the rollback of COVID-19 restrictions.
• That said, it will take some time before the global supply chain fully untangles. In the meantime, it continues to wreak havoc on retailers such as Harrods, which delayed its summer sale because of the delayed arrival of the new season’s goods.
• “Our supply chain is running two to three weeks behind where it should be,” Michael Ward, managing director at the London luxury retailer, told Bloomberg TV.

Complicating factors: The global supply chain faces a host of challenges that extend beyond Asia. For example, many empty containers needed by Asian exporters are stuck in the port of Rotterdam due to a growing backlog of undelivered goods at Europe’s busiest export hub.

• There’s also labor shortages, disruptions from the war in Ukraine, and the lingering fallout from pandemic lockdowns in China.
• The net result is that companies face significant increases in their logistics costs as they seek to adjust and minimize their disruptions, per The Wall Street Journal.
• Those renewed cost increases come on the heels of a year in which business logistics expenses rose 22.4%, according to the Council of Supply Chain Management Professionals State of Logistics Report.
• Transportation costs rose 21.7% and inventory-carrying costs—which measure the value of the goods a retailer has against the cost to store them—soared 25.9% over 2020.

Time for change: The supply chain disruptions have pushed a number of companies to rethink their production processes.

• 46% of organizations have turned to onshoring or nearshoring to minimize the frequency and impact of supply disruptions, per a survey of procurement decision makers by Forrester Consulting.
• For example, Lego will begin construction of a $1 billion carbon-neutral factory in Chesterfield County, Virginia, this fall to shrink its supply chain.
• Ikea India similarly plans to source more products locally, per Reuters.
• Others have shifted manufacturing beyond China. The US import value from China decreased from 66% of the total in 2018 to 55% at the end of 2021, per Kearney’s China Diversification Index.

The big takeaway: The global supply chain interruptions that the pandemic has brought to light should drive retailers to shift away from their old ways of operating.

• For example, Target, which had a difficult Q1 due to the abrupt shift in consumer spending to services, is working with suppliers to shorten distances and lead times in the supply chain.
• Lasting change is needed so that retailers aren’t saddled with excess inventory due to the supply chain.

Go further: For more on The Era of Uncertainty, read our report here.