Manufacturers and their supply chains have sustained crushing blows over the last 18 months, from the Suez Canal blockage to today’s port bottlenecks in Southern California and shipping delays in China. Further, the semiconductor chip shortage is stalling automotive production and supply chain shortages are affecting the production of a variety of consumer and industrial goods – it all adds up to 2021’s most commonly used word: disruption.
How do manufacturers deal with industry disruptors as they rear their ugly heads? Let’s break down a few of the major industry disruptors currently impacting manufacturing and the global supply chain.
Shipping
According to a report from ABC10, on Monday, November 1, 2021, there were 159 ships waiting to enter and unload at the Port of Los Angeles in Long Beach. Before the pandemic, the typical backlog was about 17 ships at anchor. The two ports in Southern California receive 40% of all shipping containers coming to the U.S.
Even as the Port of Los Angeles complex moved to 24/7 operations, as announced by President Biden, the backlog is expected to continue well into 2022, affecting the entire supply chain.
The situation off the coast of Southern California could see some temporary relief. The number of container ships anchored off Shanghai and Ningbo in China surged in late September, with some 242 container ships waiting for berths, according to an article from FreightWaves. The congestion in China could lower the pressure on the Port of Los Angeles in the short term, but it will undoubtedly continue to overwhelm the Port’s capacity to move goods in the long term.
In an article in Financial Times, the chair of the U.S. Federal Reserve Jay Powell indicated that supply chain bottlenecks are holding back the economy’s recovery and are pushing inflation above target — and will continue to do so. Central bankers expect the supply chain bottlenecks to continue amid higher inflation and wage increases. They believe that soaring energy prices, consumer demand, delivery delays and material/product shortages will continue to drive inflation.
So, how long will it take for the supply chain to rebound from these latest shipping delays? Time will tell.
Energy Crunch
Shortages of fuel in the UK and electricity in China are creating another set of supply chain shocks and industry disruptors.
While most major world economies are dealing with rising energy costs, Britain has been hit even harder because of the pandemic and Brexit, which removed the UK from the EU market for energy and implemented strict immigration policies, in this case affecting fuel truck drivers. Some estimates place the shortage of drivers as high as 100,000 for heavy goods vehicle (HGV) drivers, impacting commercial goods in addition to fuel. In late September, many UK gas stations ran dry.
China has experienced a significant energy crunch this year, with shortages of coal, diesel and natural gas, affecting its domestic economy, factory output and exports. The coal shortage is easing in part due to the government allowing increases in production and imports of coal, among other policies on speculation and costs.
In a recent International Monetary Fund blog, the authors point out: “Energy supply, in fact, has reacted slowly to price signals due to labor shortages, maintenance backlogs, longer lead times for new projects, and lackluster interest from investors in fossil fuel energy companies.” Natural gas production is down across the globe.
These events played out against the backdrop of the World Leaders Summit at the UN Climate Change Conference (COP26) in Glasgow. Among the conference’s goals was to reach “net-zero” by mid-century and limit global warming to 1.5 degrees Celsius.
Carbon Bubble
The “carbon bubble” is defined by Mark Campanale, founder & executive chair, Carbon Tracker Initiative, in a recent article in Forbes:
“In essence, we found that there’s enough proven reserves already in the world today to take us way past four degrees of warming – and one and a half degrees is the threshold the science tells us we shouldn’t exceed. So, this ‘unburnable carbon’ creates what we call ‘stranded assets.’ We describe it as a carbon bubble, a massive overhang of unusable fossil fuels, that has financial consequences for financial regulators and for investors.”
I’ve been reading about the “carbon bubble” as an industry disruptor for the past several years. The economics of green energy solutions such as wind, solar, and electrification, have reached a point where they are cheaper than their carbon alternatives. Without any additional governmental policies or intervention, the economics will drive the switch.
The operating costs of conventional energy are now higher than the total cost of wind and solar (and even wind and solar + 4 hours of battery storage). In other words, it would be cheaper to build and operate a new energy generation plant than to operate a conventional energy plant given to you for free.
The potential disruption in energy production and cost could have huge implications for investors, electricity consumers (who may end up holding the bag), and any industry that consumes energy (basically all of them).
We may see carbon bubble impacts on the automotive industry. I came across a video from Tony Seba who takes a deep dive on the carbon bubble question with respect to energy production. Tony Seba is a technologist with some great insights into the internal combustion engine (ICE) to electric vehicle (EV) transition.
Preparing for Change and Disruption
We’ve written about how manufacturers can be better prepared to survive amid industry disruption before. Now there is a sense of urgency around digital transformation in order to best respond to these disruptors. On December 1st, we will be airing the next installment of QAD Tomorrow, which will focus on the innovative digital solutions manufacturers are adopting to improve operational performance. The online broadcast will more specifically cover:
- Digitizing Quality and Industry Compliance
- Digitizing the Shop Floor
- Automating Material Transfer
- Building a Digital Foundation
Register today for our QAD Tomorrow: Digital Manufacturing broadcast event!
