The writer is Director-General of the World Trade Organization
Supply chain disruptions have been painful for companies and consumers alike. They have created headaches for governments and central banks everywhere and the war in Ukraine is adding to the strain. For small businesses, particularly those from developing economies, the consequences for growth, job creation, and poverty reduction could be catastrophic.
With dramatic increases in freight rates diverting shipping capacity towards the most lucrative routes, smaller businesses risk finding themselves locked out of global supply chains. And despite growing economic uncertainty, the private sector, governments and international organisations are not working together to deliver the solutions needed to make trade flows more efficient and more resilient.
We at the World Trade Organization recently convened more than 20 leading CEOs and leaders from ocean carriers, port operators, logistics companies and financial institutions to look at the supply chain crisis and possible responses.
Delays and shortages still inhibiting global trade are primarily due to consumers diverting spending during the pandemic from services to durable goods. But it’s not just strong consumer demand and booming ecommerce that cause soaring freight costs. One clear message from business leaders was that structural weaknesses were pressuring supply chains even before the pandemic. These problems have only become worse, and we need to tackle them.
Shipping carriers say congestion on land is a major driver for surging freight rates, with competition for containers and port logjams now locking small businesses and developing economies out of trading networks — and that this has been building for years. Carriers have dramatically expanded the number and size of vessels in their fleets but infrastructure has lagged, with many ports unable to accommodate new supersized vessels.
Offloading and forwarding cargo from ports is crippled by acute labour shortages as seafarers, truck drivers, longshore and warehouse workers in some key hubs reject the low pay, unsociable hours and tough working conditions on offer. Businesses report paying to keep container terminals open overnight only for only a handful of truckers to show up.
Autonomous trucks and unmanned cranes are already improving efficiency and working environments at some ports. Private-sector investments in further automation could help plug some labour gaps but most importantly labour conditions for workers must be improved too. Public and private investment is desperately needed, and port operators and shipping carriers want governments to fast-track planning approval processes. Freight forwarders say hinterland road and rail infrastructure — already straining in many countries from growth in domestic ecommerce — also needs investment, especially in developing and landlocked economies.
In addition to physical infrastructure and labour shortages, digital infrastructure and connectivity require attention — and investment. Traders often don’t know about upstream or downstream disruptions until it is too late to reroute or reschedule cargoes. This has made the current supply crunch even harder to manage.
Beyond such structural problems, process issues such as red tape and paper-based customs protocols add unnecessary delays and costs to trade transactions. Implementing the WTO’s Trade Facilitation Agreement and investing in streamlined systems will cut unneeded bureaucracy, accelerate customs clearance and reduce trading costs. Governments have shown they can simplify border processes quickly to enable rapid delivery of essential goods. Developing countries have most to gain.
Last, but perhaps most significantly for the future, climate change poses a long-term threat to supply chains and global trading networks. Developing and small island states are most at risk, but no country or business will be unaffected. The long term decarbonisation of shipping and logistics will need major breakthroughs and may lead to higher transportation costs.
To avoid a further rise in inflationary pressures, we need bold, co-ordinated action. Every actor must play their part to fix the structural weaknesses underlying supply chain disruptions, even as we work to bring supply and demand back into balance. Otherwise, the global economy will pay the price — consumers, small businesses, and vulnerable countries most of all. It’s in everyone’s interest to address these problems and there is strong goodwill: we must act now.
Source: Economy - ft.com
