By Andrei O. J. Kwok, Monash University, Kuala Lumpur, March 11 (360info) When the Yemen-based Houthis began attacking advertising ships in the Red Sea, the crisis highlighted the vulnerability of global industry bottlenecks.
This highlights how vulnerable the global chain of origin is to disruption. In a highly connected and incorporated global economy, a disruption in one position can gently cause a domino effect that temporarily spreads to the rest of the world. Creating smaller production sites within a region than a few major hubs is a solution to disrupt source chains and avoid bottlenecks. Diversifying trading partners with a focus on intra-regional industry is another. For example, Southeast Asian countries have not been severely affected by the Red Sea attacks because they maintain a healthy industry between them and their partners in the Far East and Indo-Pacific. They don’t depend too much on the West.
The Red Sea connects two major choke points, from the Suez Canal to the Bab el-Mandeb Strait, and is one of the busiest shipping lanes in the world. Its strategic location allows for the shipment of liquefied fuel and herbal oil and is the fastest container transit. between Asia and Europe.
According to the United Nations Conference on Trade and Development (UNCTAD), the crisis has led to a drop of around 70 percent in container transit, a relief of more than 40 percent in industrial volumes through the Suez Canal, and an average rate of container shipping from China to Europe has tripled.
Several corporations such as Ikea and Tesla have been particularly hard hit, while others are mitigation measures. Major shipping corporations such as Maersk, Hapag-Lloyd and MSC have strayed around the Cape of Good Hope. Longer shipping times and distances have been fueled by more fuel, and these higher prices have been passed on to consumers, exacerbating inflation and delivery delays.
Some other shipping corporations have resorted to artistic evasion tactics. While these measures are temporary, they will not be sustainable if the crisis persists. In light of shipping disruptions in the past, such as the Panama Canal drought in 2023, the Suez Ever Given blockade in 2021, the COVID-19 pandemic, and the bankruptcy of Hanjin Shipping in 2016, the global origin chain strategy needs to be reviewed.
Post-globalization has led to logistical consolidation and the centralization of production sites to exploit economies of scale. Container ships have grown from an initial capacity of 500 to 800 TEUs (twenty-foot equivalent units) to a whopping 24,000 TEUs to reduce the cost of the containership.
One conceivable solution is to decentralize global production by creating several smaller regional production sites for nearby markets. The establishment of multiple production bases in strategic locations allows for backup sources and is helping to diversify the hazards arising from any affected location. Mondelēz International, a Chicago-based company- A multinational snack food company headquartered in China operates a network of production facilities and distribution centers in each region, doubling the network of each country in which the company operates.
Another option is to geographically diversify distribution centers by creating more independent, local, and region-specific centers. This reduces the concentration on a single global and the dependence on long-distance transport. Short-distance transportation allows for faster turnaround times and more distribution centers supply. stock reserves, isolating global shocks.
Businesses can also take advantage of dual resources by expanding the source base to transfer to a secondary supplier in an unassigned location in the event of a number one supply disruption. Alternatively, co-location of the origin chain can reduce prices and delivery times for foreign logistics.
Businesses can also be flexible across different modes of transportation, such as rail or air freight. Air and rail freight is particularly faster than ocean freight and more reliable and predictable. Although they are more expensive and have a transport capacity limitation, a mix of other modes (e. g. sea and rail) can even be thought of to optimize overall speed and cost.
Digitalization and the adoption of emerging technologies in the supply chains, such as generative synthetic intelligence and quantum computing, can lead to greater visibility and greater prediction of scenarios and rapid but accurate decision-making in reaction to disruptions. These studies revealed how corporations such as Unilever and Siemens are leveraging synthetic intelligence to extract data from internet sites in order to find select source resources to temporarily cover the curtain shortage. These technologies will continue to play a catalytic role in ensuring the resilience of the supply chain.
Malaysia, Singapore, and Thailand are still immune to the major effects and are ultimately limited to logistics (i. e. , increased container rates and shipping delays). A much smaller number of companies in the Philippines responded that their industry with Europe had been particularly affected by the crisis. Red Sea Crisis: They report a delay of seven to 20 days in import shipments, which can lead to discounts in production capacity.
Southeast Asia’s industry with the European Union ranks third after ASEAN and China. Therefore, what mitigates the effect is the intra-regional industry of Southeast Asia and the option of diverting the industry to neighboring countries (e. g. , Australia, China, Japan, Korea, and New Zealand). ), thus reducing dependence on the Red Sea sea route.
Before the crisis, Malaysia had increased its exports to China when the European Union adopted new regulations on palm oil. However, a prolonged crisis raises concerns about spillover effects (inflation and shortages of goods) that may have a broader impact on the economy.
In fact, Southeast Asia could benefit. Air shipping volumes increased by as much as 62 percent in Vietnam. Maritime diversions have an increased demand for ship fuel from Singapore. And with the electric vehicle (EV) supply chain particularly disrupted, the crisis reaffirms Southeast Asia as a global hub for production and outsourcing as a long-term solution.
While the Red Sea crisis has highlighted the fragility of the global supply chain, unprecedented disruptions that typically don’t last can be an opportunity to make long-term adjustments to existing business models. (360info. org)
(This story has not been edited through Devdiscourse and is automatically generated from a syndicated feed. )