RMIT professor Vinh Thai unpacks why global supply chains are challenging right now and shares what Australian retailers can do about it.
The year 2024 is again another tough year for supply chains, with many uncertainties that are still ongoing today, especially the geopolitical risks. First, the prolonged Russia – Ukraine war is still inducing negative impacts on global supply chains, in which the most visible one is the high cost of fuel which in turn contributes to the rising costs of living. This has been happening on a worldwide basis, as reflected in various reports, as well as in Australia.
The high cost of fuel has made supply chains much more expensive and also fragile. Meanwhile, the ongoing military standoff between Israel and Hamas-led Palestinian forces in Gaza, fuelled by the expansion of the conflict to other regions such as Lebanon, has prompted other chaos i.e. the Houthi attacks on commercial vessels in the Red Sea.
Shipping, a critically important link in global supply chains, has since been negatively disrupted as vessels have to deviate from their usual routes, leading to longer lead time, congestions at some major ports such as Singapore, and eventually increasing freight rate. This, again, has contributed to the continuation of volatility and uncertainty of global supply chains in 2024.
Meanwhile, other factors have also contributed to the shaking of supply chains in 2024. First, extreme weather events such as droughts in the Panama Canal have triggered slowdowns on major shipping channels and flash flooding in Dubai was responsible for submerging an international airport there.
Next, global supply chains are still suffering from skilled labour shortages in various segments and regions, including those in Australia. Meanwhile, the focus on supply chain sustainability and circularity continues on the rise in 2024 to achieve corporate ESG initiatives, thus also putting pressure on global supply chains as Scope 3 emissions are ever scrutinised.
All of these, again, highlight how vulnerable global supply chains have been to a number of socio-economic and environmental factors.
Given what global supply chains and those in Australia have been under so far, and the ongoing geopolitical conflicts in the Middle East, my prediction is that supply chains will continue a bumpy ride until Christmas of 2024.
Speaking of Christmas…
I completely agree that retailers should get on top of their Christmas product ranges now to avoid delays. In the context of Australia, lots of household products are imported overseas, including those for the Christmas season, and the majority of them are transported by sea.
Given the ongoing chaos in the Red Sea with multiplier effects on other segments of the maritime supply chain i.e. ports, it is predicted that shipping will still be undergoing some network readjustments in the next few months, and thus further delays may still occur.
What should retailers do?
Australian retailers should focus on stabilising their supply chain for now. On the one hand, they should take proactive measures to ensure that their Christmas orders will not be delayed e.g. early ordering, having contingency suppliers and warehousing, having substitute products planned, etc.
On the other, retailers should also take the opportunity to conduct a thorough mapping of their supply chains to identify the potential “chokepoints”, especially those related to the global shipping networks, and develop their supply chain resilience capabilities accordingly.
What about 2025?
Embracing the challenges in 2024, it is envisaged that global supply chains in 2025 are still fragile, subject to various global socio-economic and geopolitical stability. In my view, the push for supply chain technology adoption and investment in digitisation will continue, with online ordering being the push factor.
This comes with the threat of cybersecurity as cyber criminals may ramp up their activities given the increasingly digitised supply chain. Supply chain sustainability will be increasingly scrutinised with sustainability reporting gradually becoming mandatory. Meanwhile, resilience will continue to be the nucleus of supply chain management, leveraging firms’ disruption and risk management capability.
In general, although supply chains in 2024 have been performing better than in 2023, there lies ahead a plethora of supply chain issues in 2025 as there has been, so far, no concrete sign that the current chaotic uncertainties will be eased soon. Hence, retailers need to constantly scan their supply chain environment and address issues as they arise early and proactively.