“Nightmare” Supply Chain Snap Back and Recession Threat Looming
(16 August 2022 – Global) A lethal combination of surging inflation, rising interest rates and ingrained supply chain disruptions could cripple logistics and shipping markets, Global Trade reports.
The impacts of the supply chain “bull whip” snap back and rising risk of a wide scale global economic recession are coming to a head, Francois Moreau reports. As the economy has rebounded from the pandemic, supply chain issues continue and are exacerbated by ongoing economic challenges.
The bullwhip effect is defined as a situation where delayed supply chain management adjustments engender increasingly amplified demand changes as they reverberate up the supply chain. The term references the effect generated when a whip is cracked, and the subsequent wave generated down the whip becomes larger as it moves towards its end. Supply chain bullwhips y take time to build up as different sections in the supply chain adjust to changing demand pressures. The most recent bullwhip originated from the COVID-19 pandemic.
Measuring container shipping volumes can impart an indication of the magnitude of the issue and how it has evolved. Before the pandemic9, the ratio of containers per shipment was relatively static. Yet in Q2 2020 the container-to-shipment ratio ratcheted higher. Major retailers used their leverage to increase the number of containers in their already scheduled shipments. Comparatively, smaller importers kept a more static ratio due to difficulty securing additional container capacity.
“The combination of inflationary pressures, interest rate hikes, and GDP regression all have a significant impact on supply chains and thus worsen the effects of the bullwhip” Global Trade Author Francois Moreau stated.
“Through the end of 2021, consumer demand remained stable, and, normally, the bullwhip effect would have slowly resolved itself as retailers worked their way through their excess inventories over time. However, the Russian invasion of Ukraine in February of 2022 upended everything. Normally, demand would stabilize, and excess product inventories could be sold. Instead, fears of the recession and other economic pressures are reducing demand further when inventories are already at extreme highs”
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