The case for relocating manufacturing closer to demand is growing, especially as risks from global pandemics, weather anomalies and geopolitical tensions rise. Shutdowns due to the coronavirus in key manufacturing hubs, such as China or South Korea, have exposed just how vulnerable global supply chains are.
But there is another equally good reason to rethink the nature of our global supply chains: sustainability.
For most of this century, China’s lower labour and energy costs made it hard for western recycling and paper processing centres to compete. Outsourcing made even more sense, given that inbound container ships bearing Chinese goods were empty on the outbound and thus available to carry trash cheaply on their return trips.
Two years ago, however, China shocked the world when it decided it was no longer prepared to be a dumping ground for the developed world’s trash.
It raised the quality threshold for acceptable materials to levels that were impossibly high for anyone in the west to achieve. For the recycling industry, the move equated to the sort of supply chain shock that most other sectors are only just getting a flavour of now.
The industry was initially very creative at finding new homes for the volumes locked out of China. But it soon transpired that many of them lacked the facilities and skills to deal with the rubbish responsibly. To curtail the environmental damage inflicted by irresponsible processing, countries including Malaysia, Philippines and Indonesia soon followed China in lifting quality standards to restrictive levels. A glut of recycling rubbish with nowhere to go has been building up ever since.
In the past few months, the recycled paper market has begun to take the brunt of the pressure. Prices for mixed paper and cardboard collapsed late last year. They are negative now, meaning that paper mills have to be paid to take rubbish they previously paid for.
In Australia — which was particularly dependent on Chinese waste processing — the problem is so bad that local authorities have stopped asking for paper to be sorted altogether. There is simply no point.
Meanwhile, in countries that still have their own paper processing capacity, such as the UK, mills are dictating increasingly tough standards. This could have knock-on effects on local councils. Many are committed to multiyear contracts for commingled pick-ups, which means they can’t easily improve quality by forcing households to do more of the sorting at home.
But even if that happened, it seems unlikely that better-sorted rubbish can solve the long-term problem. As one senior waste practitioner told me, the old globalised recycling set-up represented a harmonious and virtuous circle. After all, China’s export-led economy was flooding the west with the cheap disposable goods that were contributing to our ballooning waste problem. But as the world’s manufacturing hub, China was also best positioned to make use of the recovered material.
Investing in domestic sorting and processing is all very well. But for it to work, the real solution lies in generating final demand for the reprocessed materials domestically. That’s hard when the manufacturing and packaging activity occur abroad.
On that front there is hope. New producer responsibility policies, to be introduced over the next few years in the UK and EU, pass the liability of pollution to the manufacturer. This could stimulate that demand, and reshoring.
The theory is that if developed world corporations are made responsible for the pollution associated with the full lifecycle of their products, that would remove the cost advantage of using suppliers from areas with lower environmental standards.
That, in turn, creates an incentive to bring production and packaging activity closer to the source of recyclable material. To compete, the developing world would then have an economic incentive to raise environmental standards for its export-focused manufacturing.
This might finally end the not-at-all virtuous circle of the west effectively outsourcing pollution to the developing world every time it raises its own domestic standards.
