The shock to the world economy caused by the Covid-19 pandemic raised many questions for business, not least “What kind of shock is this?” Companies have been trying to understand whether the pandemic was predominantly a shock to demand, a shock to supply, or a shock to logistics. These questions were the starting point for our inaugural Trade in Transition research which examined, in detail, the experience of over 3, 0000 supply chain executives around the world during 2020.
The report has proved invaluable, revealing that there is no single answer. The 2020 shock took multiple forms, in different markets and sectors. The shape of the shock depended on various factors, including the predominant economic activity of each region, the nuances of different sectors, and the location of businesses in the long supply chains crucial to global trade.
Quantifying the shock
Taking the global view, 40% of respondents said the crisis was primarily a demand shock (defined as difficulty selling products to customers in international markets); 33% described it as a supply shock (a difficulty in purchasing raw materials for production); and 28% said it was a logistics shock (a difficulty arranging transport or logistics services).
But these headline figures mask a more complex picture between regions and sectors. In fact, the findings confirm the view of industry experts that the pandemic cannot be seen through the traditional economic lens that defines a “shock” event, being led by one single factor.
While at a global level the pandemic was seen mainly as a demand shock, supply chain executives in both North and South America said their experience was mainly a supply shock (42% and 46% respectively). Notably in North America few reported logistics as the main source of the shock – just 20% of respondents.
This relatively low reporting of logistics shock reflects the fact that large amounts of trade take place within North America, so logistics networks were less effected by the crisis.
In contrast, supply chain executives in the Middle East described the crisis as mainly a demand shock (48%) reflecting the importance of oil and gas exports for the region, which would have been significantly impacted by the broader global slowdown. Europe too suffered mainly a demand shock to exports as restrictions to movement curtailed business activity and tourism.
In Africa meanwhile, 48% of executives said the crisis was primarily a logistics shock - key African ports were notably disrupted by the pandemic.
Within these wide variations between regions there were also significant differences between sectors. To take one example, in Asia, retailers saw the crisis as mainly a demand shock (47%) but healthcare and pharmaceutical companies suffered mainly a supply shock (43%).
These figures are a fraction of the findings that emerged the Trade in Transition research. What is clear is that the pandemic has been multi-faceted, not a single shock, but a series of rolling interrelated shocks hitting supply or demand at different times and in different locations and industries, but also commonly materialising in logistics shocks.
For many firms, the way ahead will involve reconfiguring supply chains, to adjust to some of the lasting changes brought about by the crisis and building in flexibility and resilience to ongoing and future uncertainty.
Digital solutions will play a key role, and many firms have begun implementing new technology. During the crisis 40% of executives in the survey said they had introduced cloud computing, 38% have introduced the Internet of Things (IoT), a third (33%) have introduced big data analytics, and 16% have brought in automation or robotics.
These are excellent signs of businesses using the latest technology to adapt to the recent shocks and accelerating the digitisation of supply chains and we at DP World also believe strongly in the vital importance of talent and technology.
And as the Trade in Transition Report has revealed, it is also critical to avoid simplistic answers and one-size-fits-all explanations. They key to recovery for global trade lies in understanding the variety and complexity of challenges facing global supply chains.