Viewpoint: Dominoes are falling in the global supply chain

Jonathan Hoffman, former assistant to the secretary of defense for public affairs, is one of the keynote speakers at The Future of Supply Chain live event May 9-10 in Northwest Arkansas.

It is an obvious truism that the far-reaching impacts of small events in remote parts of the world are often difficult to comprehend. There is a popular internet meme that jokingly tries to address this lack of understanding.  

The meme shows a chain of increasingly larger dominoes lined up and ready to be felled, with the first domino always labeled as something insignificant and the final enormous domino labeled as an event of tremendous importance. My personal favorite version of this meme is about “Megxit,” with the small domino as “the American legal procedural drama ‘Suits’” and the largest domino at peril is the “collapse of the British monarchy.”

The base meme could easily be applied to a single patient getting an odd “flu-like” illness at some point in 2019 in the city of Wuhan, China, and leading to the eventual collapse of the 80-year-old global security and economic order in 2022. Even with all the concern over COVID-19, most people did not realize that we were in the midst of impossible dramatic economic and societal change until recently — as the latest domino prepared to fall in Ukraine.

From a supply chain point of view, the intervening dominoes fell fast during the COVID-19 outbreak.  

First, a large city in a world power was effectively cut off from the rest of the globe as an unprecedented forced quarantine was implemented on millions of people. Citizens of foreign countries were evacuated on charter jets back to their homes — where they too were quarantined.  

Next, the U.S. president ordered the closing of national borders to travelers from China. He quickly followed that mandate with a similar border-closure order for Europe and, eventually, the world. These isolationist moves were copied by most nations as countries recoiled in fear. 

The impact on trade and travel was obvious and immediate. Passenger jet travel stopped. As roughly half of all air cargo travels on commercial passenger aircraft, airfreight was immediately crushed. The supply chain took further shots as ships were refused berthing and even uninfected crews were left at sea for months.

We saw further supply chain dominoes fall with respect to medical supplies. The world very quickly realized that key items needed to maintain their medical responses — masks, gloves, respirators, medication — were often not produced domestically and were only available at the whims of producer nations (which were generous in keeping goods moving in most situations).  

As the world shut down production of basically everything to keep workers safe, just-in-time supply chains collapsed, shelves were empty and consumer spending cratered.

Then, remarkably, a few months later, as immense economic stimulus funds were shoveled into economies, this restricted spending reversed itself and we saw staggering demand as people stuck at home and unable to spend money on trips, entertainment or in stores made massive sustained orders from online retailers in unheard of volumes, clogging supply chains for more than a year as supply and demand struggled to reach equilibrium. 

All the above happened in one brief year, but the implications of the pandemic continued to reverberate into 2022.  

Russian President Putin’s move to invalidate Ukraine’s borders, push for regime change and thwart potential future NATO expansion was born, in part, of a need to distract from his own internal instability and a view that as the West recovered from its own domestic COVID-19 upheaval and associated isolationism, it would be unable to stomach the military or economic response necessary to thwart his ambitions. The breakdown in a global society that resulted from COVID-19 laid the foundation for a Russian invasion. 

Putin’s attack on Ukraine and the resulting extensive sanctions have caused true pandemonium to the world’s economy. Basically, everything is going to get more expensive in the short-term: Oil from Russia is cut off from most markets; the Ukrainian wheat harvest — one of the largest in the world — will be diminished, while Russia’s harvest is embargoed; and raw materials like nickel, aluminum and palladium will become rarer. 

As Russian airspace is closed off to foreign carriers, flights from Europe and North America have to be rerouted around the largest nation on the globe, adding hours to journeys and increasing costs (as well as their carbon footprint). Even more damaging, most foreign carriers have stopped passenger and cargo flights into Russia — further isolating one of the world’s largest economies.

What is ironic is that these pandemic- and war-induced global economic changes come at a time when so much progress is being made in “modernizing” supply chain functions through heavy investments in technology.  

Massive infusions of capital and intellectual power have flooded an industry historically associated with physical labor, massive capital equipment costs and outdated operational methods — in part due to the attention shined on the importance of supply chains during the pandemic — and have created an interesting frontier in the next domain for technological revolution. 

This technological revolution could not come at a better time. As the decades-old geopolitical world is upended, all that we knew and trusted about old business practices are subject to being invalidated.  

Where information on shipping or freight volumes and rates from previous years can influence corporate decision-making, with dramatic changes to markets and whole economies, businesses need better real-time market data, or near-real-time data, more than ever. Similarly, they need to better understand their own internal networks, where vulnerabilities lie and how to build resilience.  

This cresting wave of uncertainty will only drive the need for data and information — both internally and externally — and hence the investment in modernization and digitization of the global supply chain.

To be frank, we don’t know exactly what the world will look like in two months when we meet at The Future of Supply Chain event. However, we do know the world will be less predictable and more volatile and will require a more resilient, better informed supply chain to keep our economies operating. There is lots to discuss.

I really appreciate FreightWaves CEO Craig Fuller and the team for inviting me to speak at this event and look forward to visiting Northwest Arkansas May 9-10.