Supply chains across every industry had their ups, downs, and disruptions in 2022. From the Russia-Ukraine war to factory fires to chip shortages, and the continued prevalence of COVID-19, the year certainly kept organizations and supply chain teams on their toes! The last three months of 2022 saw new and existing supply chain risks related to geopolitics, extreme demand shifts, commodity and supply shortages, and cyber –attacks. All continued to create the perfect storm of supply chain chaos in Q4.
After reviewing our Q4 data, speaking to customers about their concerns, and conversing internally, there were four major areas that consistently came up and drove conversations. In this blog, we will breakdown these four topics and take a look at what the future holds.
1. Taiwan and China Tensions
Conversations and concerns over China invading Taiwan and what that would mean for the semiconductor industry were a plenty in Q4. Currently, Taiwan dominates the global chip industry with 65% ownership; China comes in second.
Taiwan’s lead in the semiconductor industry is fueled by TSMC, the largest global supplier of semiconductors, valued at roughly $100Bn in 2021. Because TSMC produces the majority of the world’s supply of semiconductors, a shutdown of TSMC plants due to a hostile takeover, would wreak havoc across global economies and supply chains.
Hypothetically, China’s takeover of Taiwan would likely not result in the expansion of the Chinese semiconductor industry, due to its reliance on Taiwan’s semiconductor and electronics industries, the majority which is powered by TSMC. If there is a takeover, TSMC plants would be taken offline, making the invasion “useless” according to Chen Ming-tong, director-general of Taiwan’s National Security Bureau.
However, if Taiwan’s efforts of individualism are backed by the US, a war involving China would impact the supply chain more than the Russia-Ukraine war due to global reliance on China. Globally, the shutdown of TSMC would cost the world economy over $1Tn according to an estimate by the US National Security Council.
As of now, TSMC is currently building a plant in the US, its only other operation outside of Taiwan. In 2023, businesses with ties to the semiconductor industry should pay close attention to Taiwan, as a shift in political status with China could make major waves – to semiconductors and the world. For an in-depth look at how this scenario might play out, download Resilinc’s Special Report: China-Taiwan Risks to the Global Economy.
2. Commodity Fluctuations
Three major commodities of focus in Q4 2022 were: aluminum, nickel, and chrome. These three commodities can be found in almost everything in your kitchen from stainless steel fridges (chrome), to canned goods (aluminum), and toaster overs (nickel) – not to mention phones, cars, and planes.
At the end of 2022, Aluminum costs were up 5-10% due to high energy and raw material costs, growing demand, a decline in China’s production capacity, and reduction in global inventories. Increased energy costs in particular led to cuts in production, employee layoffs, and companies filing for bankruptcy which in turn drove aluminum prices higher.
Conversely, demand for nickel fell due to risks of recession, and inflation. Even the fact that nickel inventories decreased by 50% over the course of the year didn’t cause a demand shift (which is typical when a supply shortage occurs). For a more in-depth look, download Resilinc’s Special Report, Global Aluminum and Nickel Marketing: Key Challenges and Top Solutions.
As global demand for stainless steel grew in 2022, the need for chrome increased. Currently, China is dominating the market due to its population and the demand for chromium compounds such as sodium chromate and sodium dichromate used in leather tanning, textile mordants, and colors. By 2027, the market for chrome is expected to grow from $72.18M to $86.4M fueled by the increase usage of chrome in car engines, construction equipment, and aircrafts. Learn more in Resilinc Special Report about the challenges in the chrome and steel market and the most impacted industries.
Side note: if your business relies on commodities that are experiencing significant price fluctuations or shortages, check out Resilinc’s CommodityWatchAI. Our predictive algorithm solution combines machine learning and Resilinc’s proprietary data to predict commodity price fluctuations and supply constraints more than three months out.
3. Global Drug Shortages
November 2022 saw shortages in drugs and medical supplies such as Adderall, Amoxicillin, Tamiflu, automatic tourniquets, and bacteriostatic saline. What was the cause of these shortages? In a CNN piece on vulnerabilities in US drug supplies Resilinc’s, CEO, Bindiya Vakil had this to say:
“Many of the raw ingredients that go in to making drugs are sourced from just two countries, China and India. Any disruption in China or India, such as work stoppage at a factory due to China’s strict zero Covid policy, which was only recently eased, may have a ripple effect on the supplies of many products, including medications.”
Will drug supply chain issues continue in 2023?
Drug shortages will continue in 2023 due to high energy costs, labor shortages, manufacturing disruptions, and an increase in filled beds at hospitals causing higher demand for drugs and machines. Check out FiercePharma’s article for more on why drug shortages aren’t going away any time soon.
4. Cyber Attacks
In 2022 Resilinc’s EventWatchAI monitoring platform recorded the most cyber–attacks in a single year, up 49%. In Q4 alone we sent out 127 alerts regarding cyber –attack incidents. This trend is expected to continue as cyber criminals exploit supply chain weaknesses, including designing an attack to enter a supply chain and create damages and disruptions to several interconnected businesses.
As supply chain networks become more complicated and crucial to business continuity, they are increasingly more susceptible to cyber attacks. Since 2020 cybercrime has skyrocketed due to remote work, third-party outsourcing, geopolitics, and more, with criminals breaching the supply chain networks of businesses across nearly every industry. And the impact is substantial, resulting in lost customers, revenue, and even impacting services and manufacturing.
Check out Resilinc’s Special Report: Top Cybersecurity Threats to Your Supply Chain to learn more about what you can do to prevent cyberattacks.
Will supply chain issues continue in 2023?
As 2023 begins, let’s see what’s in store for supply chains in the next 6-12 months. Cyber attacks will continue to increase due to the proliferation of SaaS offerings and widespread use of cloud hosting. Labor shortages will continue to be an issue which will most likely create a decline in labor productivity.
Due to inflation and lasting lockdown impacts in the US, Europe, and China, economies will weaken further. With weaker economies and rising energy & material costs, production disruptions in energy intensive industries are projected.
It’s not all doom-and-gloom, though. Restaurants and travel should see gains as supply and demand stabilize. Healthy growth is also projected for the automotive industry – with potential for the US vehicle sales to increase by 2.5M!
For a more in depth look at all the supply chain hot topics in Q4 and prior to that, please check out our Special Reports page.