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Supply Chain Roundup - Week 31/32 - 2023

Aug 13, 2023
4 min read

Updated: May 19, 2024

The New Dynamics of Global Trade

A recent study highlights a significant reduction in financial losses due to supply chain disruptions, showing a decrease of over 50% in 2022 compared to the previous year. The 2023 Annual Global Supply Chain Report by Interos, which surveyed 750 companies with revenues ranging from US$500 million to US$50 billion, provides insights into the impact of supply chain challenges on these organizations.


In the past year, companies faced an average financial hit of US$82 million due to delays and disruptions in global supply chains. This figure is substantial but pales in comparison to the US$182 million average loss companies endured the year before. The surveyed companies represent a broad spectrum of industries including energy, financial services, healthcare, government, and aerospace, and are based in the US, Canada, the UK, and Ireland. The findings indicate a general easing of supply chain pressures.


The report also discusses the ongoing boom in electric vehicle (EV) production and its implications for the demand for critical materials. Automakers and battery manufacturers are innovating to reduce dependence on scarce materials like lithium and nickel, amidst the challenges posed by a concentrated battery production market, primarily dominated by a few countries, notably China. This concentration is prompting some companies, such as Volkswagen and Stellantis in Europe and Ford, General Motors, and Tesla in the US, to vertically integrate their operations by investing in mining and refining operations for these critical raw materials.


Legislation plays a significant role in shaping these industry trends. The US Inflation Reduction Act mandates that 40% of critical minerals in EVs must be sourced from the US or its trade partners to qualify for subsidies. The EU's Green Deal Industrial Plan is responding with its own measures, including expedited permits for mining projects and subsidies for critical materials. However, China's export restrictions on essential chipmaking materials, including gallium and germanium, are causing concern, potentially impacting the supply of high-tech components crucial for various industries. Beijing justifies these impending measures as a ‘safeguard to national security and interests,’ set to take effect on August 1.


The battery supply chain, consisting of upstream (extraction), midstream (refining), and downstream (assembly) stages, sees China as a dominant player in at least one stage for many critical mineral commodities. Germanium is crucial in high-speed computer chips, specific plastics, and military technologies such as night-vision devices and satellite imagery sensors. Gallium’s applications include the construction of radars, radio communication devices, satellites, and LEDs.


Source: "How China cornered the market for clean tech", Financial Times


In response to US incentives aimed at reducing reliance on Chinese components, companies like the Korean conglomerate Posco are shifting production to become compliant with US regulations, moving operations from China to South Korea and sourcing materials from countries like Australia. Posco is building a supply chain for IRA-compliant materials in which “nothing will be produced or sourced in China”.


In June, Posco declared the initiation of collaborative projects valued at $1.2 billion with CNGR Advanced Material from China, aimed at developing high-nickel cathode materials along the southeastern shores of the Korean peninsula. Additionally, the partnership extends to managing a facility dedicated to battery recycling in Korea, in collaboration with the GS Group, a major Korean conglomerate.

 

The shift of these joint ventures from China to Korea marks a significant change, with the specifics of Chinese stakeholding in ventures targeting the US market yet to be clarified by Washington.

 

Posco, recognized among the global top ten steel producers, has seen its market value triple over the last three years, fueled by a surge in investment in Korean enterprises involved in battery technology. Between 2023 and 2025, Posco plans to allocate 43.6% of its capital investments towards its battery materials sector, surpassing its investments in steel production, which stood at 13.6% from 2016 to 2018.

 

The Digital Revolution in Supply Chain Management

Leading global corporations are increasingly leveraging artificial intelligence (AI) to manage complex supply chains amid growing geopolitical tensions and ethical concerns. Companies like Unilever, Siemens, and Maersk are employing AI for tasks ranging from contract negotiations to supplier selection and identification of ethically problematic associations, such as those linked to the repression of Uyghurs in Xinjiang. The advent of generative AI technologies is enhancing the capabilities of supply chain management tools, offering more sophisticated automation options.

 

Siemens, for example, has partnered with the Berlin-based startup Scoutbee to utilize a chatbot capable of identifying alternative suppliers and pinpointing vulnerabilities within supply chains. Maersk is leveraging the services of Altana, a New York-based startup, is utilizing AI to create a global network map of 500 million companies, aiding clients in tracing supply chains back to contentious regions or ensuring compliance with international sanctions. Altana has raised more than US$100 Million since 2022 and signed contracts with major companies. Altana allows is customers to use its AI-enabled platform to trace products back to suppliers in Xinjiang, Smith added, or track if their own products are being used in Russian weapons systems.

 

A survey by Freightos indicates a growing trend towards AI adoption among supply chain professionals, with a significant portion of executives planning to integrate AI technologies in the near future (as many as 96% of supply chain professionals surveyed intend to implement AI technology. However, currently, only 14% have adopted it in their operations.). Investment in this sector is robust, with UK-based Kavida AI recently securing additional funding (US$1.1 Million) to incorporate ChatGPT into its platform, enhancing its supply chain risk management services.

 

Reports like the 2023 Annual Global Supply Chain Review by Interos and the 2023 Supply Chain Barometer emphasize a strong inclination towards technological solutions to improve supply chain visibility and risk management.

According to Interos, 77% of companies surveyed planned to implement technology within 12 months to gain visibility into their supply chains.

The 2023 Supply Chain Barometer, which analysed 2,000 CEOs in the UK and US revealed that more than a quarter (26%) of CEOs were actively looking at onshoring and nearshoring some or all of their supply chains.


An increasing number of CEOs are considering reshoring or nearshoring strategies to mitigate supply chain vulnerabilities, reflecting a significant shift in the approach to global supply chain management. As reliance on AI for demand forecasting and procurement grows, the industry is also exploring its potential in standardizing processes and optimizing delivery mechanisms, signifying a profound transformation in supply chain operations driven by digital innovation.




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© 2023 by Daniel Cherouana.
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