Global Supply Chain Snafus Just Got Worse.

The global supply chain crisis was underway well before the War in Ukraine. In some respects, it can be traced to the beginning of the trade war under Donald Trump in January 2018.

As Trump imposed tariffs aimed at China, the Chinese retaliated with tariffs of their own. Tariffs raise costs to suppliers and end-users, but that was not the extent of the trade war tactics.

China slashed its purchases of U.S. soybeans and moved its order for soybeans to Brazil. Economically, that’s a win for Brazil, but it scrambles supply chain logistics.

Suddenly ships bound for California ports were re-routed to ports in Brazil to receive their soybean output. These were not one-time shifts. Buyers and sellers in global commodities markets prefer long-term relationships. It’s a big deal to shift purchase orders from the U.S. to Brazil. But, once you make the move you don’t shift back, even if the tariffs go away.

Take that basic idea and apply it to everything from solar modules to semiconductors, and you’ll begin to get some idea of how much damage was done to fragile supply chain logistics. Then came the pandemic, which hurt supply chains even more as buyer and seller facilities in plants, ports, shipping, trucking, warehouses, and distribution centers were all closed temporarily (and at different times depending on the location of the outbreaks).

This created bottlenecks and backlogs on top of those already existing from the trade war. Now, to complete the trifecta comes the War in Ukraine with extensive sanctions, retaliation, and physical disruption from the war itself.

The war is already damaging global supply chains. As described in this article, BMW and Volkswagen have both shut down automobile production lines because of their inability to obtain a simple cable wiring harness part that is supplied by production facilities in Ukraine.

In some cases, you can assemble most of the automobile and then install a delayed part near the end of the process. That’s not true for wiring harnesses. They are installed almost at the beginning of the manufacturing process. This means that the assembly line is halted at an early stage of production and nothing else can be done in the meantime.

This is a pointed example, but far from the only one. The manufacture of many products all over the world is suffering disruption due to supply chain delays with their origin in Ukraine.

Agriculture and wheat exports may be the worst affected. The planting season begins soon and Ukraine cannot obtain the fertilizer it needs to plant crops. Those crop shortages will impact global supplies next fall when the harvest season begins.

Don’t believe the Pollyannas who say the supply chain crisis is almost over. After trade wars, a pandemic, and a shooting war in Ukraine, it’s more accurate to say the supply chain problems have just begun.

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