3. Energy shortages
Inflation has not only been a problem for food prices, but also energy costs. Rising gas prices and reduced supply from Russia are forcing European companies to look to alternative energy sources like coal, while research from Germany’s Chambers of Industry and Commerce shows 16% of its companies expect to either scale back production or partially discontinue business operations.
Germany is Europe’s largest economy and it is heavily dependent on exports. If it is expecting a recession, the impact on manufacturing supply chains globally could be significant.
But even countries that are less reliant on Russian gas are experiencing energy price rises with serious consequences for businesses. Pakistan has shortened its work week to lower energy demand. In Norway, fertiliser production has been slashed, affecting food supply chains.
US retailers are cutting their sales forecasts and UK car makers are worried about their output. In southwestern China, car assembly plants and electronics factories have already started to close due to a lack of power. All of these disruptions will cause ripples along global supply chains.
4. Geopolitical uncertainty
The invasion of Ukraine is the root cause for much of the energy and food price inflation countries are experiencing at the moment. It has thrown supply chains into disarray this year, fuelling a global food crisis.
A fertiliser shortage is also limiting agricultural output in many countries. While some grain ships have now left Ukraine, unlocking important supplies that will address famine in countries like Yemen, this will not solve the global food supply crisis.
In other parts of the world, tensions between China and the US that were already playing out pre-pandemic have continued. Recent Chinese military exercises in the Taiwan Strait following a visit to Taiwan by US House Speaker Nancy Pelosi disrupted one of the world’s busiest shipping zones in August.
Any further escalation of tensions could disrupt, for example, supply chains that deliver semi-conductors used in computers to manufacturers around the world.
5. Extreme weather
Climate change is a much more long-running problem for supply chains. This year, drought has caused water levels to drop around the world, impacting major shipping supply routes.
Low water means ships can only carry a fraction of their usual freight to minimise the risk of running aground. While freight can be diverted to other types of transport, a single ship might require more than 500 trucks to move its cargo.
In recent months, parts of China’s Yangtze river, which is responsible for 45% of the country’s economic output, have been closed to ships because water levels are more than 50% below normal. Two thirds of Europe is also experiencing drought conditions, which are only expected to worsen.