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Global supply chains remain disrupted as the COVID-19 pandemic enters the third year and the war in Ukraine creates chaos in Europe-Asia transportation. Expert Mark Millar said the disturbance offers companies an opportunity to reevaluate their sourcing and production, considering a more regional approach going forward. He also expects global supply chain reconfiguration to last through 2025 to 2030, with some businesses nearshoring and reshoring.
Millar is an internationally known industry expert in logistics and supply chain strategies with over 30 years of global business experience. He is a renowned keynote speaker and author of Global Supply Chain Ecosystems. He will deliver a keynote speech at a webinar hosted by DIGITIMES Asia on August 25: From Long Chains to Short Chains: Reforming Global Supply Chains in the Post-Pandemic Era.
According to Millar, much of the world is still experiencing vast supply chain chaos, while some regions are recovering. The more globalized supply chains are, the more prevalent the disruption gets. However, the challenges companies face today differ from two years ago, especially with the ongoing Russia-Ukraine war, which Millar described as a "black swan" event.
He said that in 2021, an additional one million cargo containers traveled by rail from the East, mainly China, to Western Europe due to the significant congestion in the sea freight shipping sector.
Most of those routes go through Russia and are not available now. Therefore, freight forwarders and logistics companies must find space for the containers on ships that are already full to capacity.
On a broader basis, the crisis in Ukraine has impacted the availability of oil and gas and increased energy prices. Millar said the situation has created a knock-on effect on the global transportation network serving supply chains.
More nearshoring and reshoring to come
What can companies do to tackle the challenges? While it is an overused term, Millar said collaboration among the supply chain partners is the practical way to get through the crisis in the short to mid-term. The effort includes finding alternative sources or transportation routes that may be more expensive but can deliver the goods to the final destination.
On a medium-term basis, Millar said the disruption has created an opportunity for reevaluation after 30 years of globalization. For instance, companies might want to take a more regional approach in the future that would build more resilience into their supply chains and reduce emissions.
In fact, a movement of businesses reconfiguring their supply chains has started. Millar said some companies are looking at or implementing nearshoring, moving sourcing and production closer to the final destination market. Others are considering moving sourcing and production back into the final destination, which is reshoring, also known as on-shoring.
"We'll see a movement towards a more regional approach to supply chains," Millar said.
The expert added that in the European scenario, Poland, Turkey and even some North African countries with low-cost labor forces and are geographically close to Europe would all come into play as potential nearshoring locations.
Sourcing and production to remain strong in Asia
With all the nearshoring and reshoring coming, questions about whether reconfiguring supply chains would affect Asia's, especially China's, role as the manufacturing powerhouse have been raised.
Millar said due to multiple reasons, there will not be a mass exodus, only a proportion of production will be moved out of China or Asia. For example, some of the supply chains are so complex and fine-tuned that relocating them would be prohibitively expensive and risky.
Moreover, the majority of growth in the consumer class will continue to originate from Asia until at least 2030. Millar said the increase would almost make up for what would exit Asia for nearshoring. Therefore, production and sourcing for supply chains in Asia will remain strong to serve the region.
Additionally, the China government has taken the dual circulation strategy to foster greater self-reliance for its economy. The policy will provide extra impetus to boost production within China.
Millar concluded that the real movement of reconfiguring global supply chains will become evident from 2025 to 2030. Besides nearshoring and reshoring, companies would concentrate supply chains in China for the products they sell locally – "In China for China." Furthermore, the diversification around Asia would result in a China-Plus strategy, creating supply chains built in Asia for Asia.
Some CEOs and CFOs of major listed companies are now involved in the strategic decisions of supply chains, Millar said. Lots of executive boardroom discussions about future supply chain directions will be ongoing. The results will gradually unfold over the next five to 10 years.
"The global supply chain landscape in 2030 will be pretty different to what we've been used to for the last decade or so," Millar added.