Revealing Lessons on Supply Chain Crises During Global Pandemics

The COVID-19 pandemic, which spread across the globe a few years ago, marked a significant turning point in the trajectory of the global supply chain. It adversely affected the flow of goods and products across borders, with this disruption stemming from the precautionary measures taken by countries to mitigate the pandemic’s repercussions. Simultaneously, the pandemic highlighted areas of concern and shortcomings within American capitalism, emphasizing the prioritization of profits according to global corporate policies, while neglecting labor rights and issues, which became starkly evident during the pandemic.

In this context, Peter S. Goodman’s book, “How the World Ran Out of Everything: Inside the Global Supply Chain,” released in 2024, focuses on the reality of the disruptions inflicted upon supply chains since the onset of COVID-19. It sheds light on the vulnerabilities of the regulatory measures promoted by business leaders, which prioritized efficiency through outsourcing production and minimizing labor costs at the expense of human rights. This calls for an intensified effort to enhance worker protection and mitigate the overreaching risks associated with unchecked globalization.

Vulnerability of Supply Chains:

The COVID-19 pandemic underscored the complexity and fragility of the global supply chain, particularly within the most economically and logistically advanced nations. It exposed these countries’ inability to respond to the pandemic’s challenges and impacts due to disruption in supply chains and supply routes, leading to halted shipping activities and overflowing warehouses, along with disrupted delivery trucks.

Consequently, there was a significant decline in the strategic stock of food and essential goods; the outcome was a scarcity of everything from breakfast cereals to medical devices, and from non-essential items to strategic necessities of life. While the scale of the pandemic’s shock was unprecedented, it revealed a troubling reality: that the system was fundamentally at risk of slipping into chaos, as it became clear that the global supply chain was on the brink of permanent collapse due to monopolization and lack of market transparency, alongside deteriorating working conditions for individuals involved in supply and logistics chains. These deteriorations were particularly pronounced during the pandemic, following the shutdown of many factories, coupled with a shortage of port workers and truck drivers.

The unexpected challenge of the COVID-19 pandemic led to a global supply chain shortage by exposing weaknesses in infrastructure, business practices, manufacturing processes, and fragile relationships between the Global East and Global West. The atmosphere of global trade mixed with globalization, enabled through various dimensions such as container standardization, transferring business practices from West to East, and adopting policies based on just-in-time manufacturing and inventory management, illustrated how dependent the West became on the East. This situation resulted in significant supply shortages for many manufacturers over extended periods during the pandemic, alongside difficult labor practices in the United States, particularly across industries ranging from manufacturing to trucking and rail.

In this regard, there are several other key factors that have made supply chains susceptible to disruptions, including the emphasis on just-in-time inventory management and relentless pursuit of profits at the cost of exploiting cheap labor, their health, and unsustainable livelihoods. In response to these gaps, companies are increasingly adopting strategies to bring manufacturing closer to home or near-shore to reduce supply chain risks and avoid geopolitical tensions, whether in Eastern Europe, Mexico, or manufacturing hubs such as Vietnam, India, and Cambodia. This aims to shorten the distance between manufacturing sites and consumer markets.

However, while these strategies appear economically viable, costs are often higher than those associated with China-based manufacturing, along with the challenge of detaching from reliance on parts and raw materials from China, which creates a web of interconnectedness and overlap in supply chains and reliance on various markets, whether for exporting products or sourcing raw materials and manufacturing components.

Limited Competition:

The COVID-19 pandemic saw a decline in plurality and competitiveness among companies supplying the global market with strategic goods or serving as vital links within supply chains. This trend resulted from the monopolistic practices of many traders and companies, aimed at creating supply shortages to drive up prices and achieve high-profit margins. This scenario led to significant disruption in the supply chain and bottlenecks at every stage, with several notable manifestations of monopolization and its causes outlined as follows:

1. Transportation Sector and Lack of Competition: The transportation sector represents one of the most critical links in global trade, influencing the prices of goods based on shipping, transport, and unloading fees. However, several factors negatively shaped the circumstances during the COVID-19 crisis, such as the removal of regulatory restrictions related to shipping following the implementation of the Shipping Reform Act of 1998, which liberated shipping companies from regulatory constraints, in addition to a shortage of the metal structures used by trucks for container transport. There were over 2,000 worn-out chassis used by ports like Long Beach-Los Angeles.

These factors exacerbated the supply chain crisis in two primary ways: First, there was a decline in competitiveness among shipping companies, with three major shipping alliances comprising eight shipping companies expanding their market share from 30% to 80% of the total market. Second, following the previous point, as a result of the COVID-19 pandemic, these companies exploited their market dominance to engage in monopolistic practices that significantly raised shipping prices, imposing pressure on the economies of developing countries and contributing to imbalances in supply and logistics chains. This period was marked by weak enforcement of antitrust measures.

2. Infant Formula Market Monopolization: A notable example of the absence of regulatory frameworks and the rise of monopolization policies emerged in the infant formula market. The pandemic led to a shortage of infant formula that began in early 2022 due to the monopolization of Abbott Labs, a company that, along with two other companies, controls about 98% of the domestic infant formula market. Following its decision to close one of its factories, the price of its products soared to double that of infant formula in Europe.
3. Reliance on Flexible Manufacturing: Beginning in the 20th century, a prevailing approach among most businesspeople in the West, particularly in the United States, was to rely on China as a center for global manufacturing, given its vast workforce and the nearly complete absence of labor protections. This scenario reflects the desire to shift industry to the Far East in pursuit of what is known as just-in-time manufacturing or flexible manufacturing. This approach is built on maintaining sufficient inventory only to meet current demand. While flexible manufacturing reduces warehouse costs for companies, it increases the risk of shortages in the event of global disruptions.

Necessity for Reform:

The supply chain and logistical framework is predicated on two forces: reliance on Chinese manufacturing and the “just-in-time” manufacturing model adopted by most companies. In light of the significant challenges faced by supply chains and logistics, which expose the fragility of these systems even within economically advanced countries, the need for reform and action on various fronts is compelled:

1. Establishing Regulatory Oversight, Especially in Ports: Given that port jobs are among the rare functions within the American industrial economy that provide a solid presence for the middle class, it is essential to establish regulatory controls in maritime ports while bolstering the position of port worker unions against automation to safeguard these jobs.
2. Redrawing the Worker-Investor Relationship Radically: Greater attention should be paid to the mechanisms of acquiring goods and supporting labor as the most impactful link in the supply and logistics chains. The goal is to achieve meaningful reform of the supply chain to make it reliable and resilient, enhancing the viability of small businesses and increasing their presence in global markets, especially since these companies were the most affected by the surge in shipping costs during the pandemic (which rose more than tenfold from pre-pandemic levels).
3. Need for Fair and Transparent Markets for All Supply Chain Participants: This applies to essential goods in the shipping industry and labor. Although this approach will inevitably impose some supply chain issues in the future, it will create long-term stability in the markets for goods and products.

In conclusion, the book attributes the impact on supply chains during the COVID-19 pandemic to insufficient government intervention, which significantly contributed to the absence of competition among various market forces. This left many industries suffering from a lack of competition, and the “just-in-time” inventory management exacerbated the pandemic’s effects. The deteriorating economic conditions stemming from resource deficiencies in infrastructure and low wages for workers primarily resulted from the greed of companies and executives seeking profit without regard for the actual needs to support labor and uphold its rights or to develop the logistics infrastructure supporting the supply chain.

Although the pandemic highlighted the disparity between the manufacturing base enjoyed by the East compared to the West and revealed the deterioration within supply chains, it simultaneously yielded positive outcomes, such as the substantial resurgence of labor unions to protect workers’ rights across all sectors, alongside the reevaluation of certain government regulations, with enhanced production processes and the integration of more innovation and technology to improve worker productivity.

Source:

Peter S. Goodman, How the World Ran Out of Everything: Inside the Global Supply Chain, Mariner Books, June 11, 2024.