tianjin Archives - Supply Chain Institute

Disruptions in China can lead to ‘ripple-effects’ across global supply chain, says HSBC

China’s zero-Covid restrictions will impact global supply chain recovery as any small disruption in the country will likely lead to “ripple effects” across the world, according to the head of shipping at HSBC. The pandemic has revealed “how lean the supply chain has become. And there is little margin of error,” said Parash Jain, global head of shipping and ports equity research at HSBC.

“The sheer importance of China when it comes to global trade means that any small disruption in China, will have a ripple effect across the supply chain,” Jain told CNBC’s “Squawk Box Asia” on Monday. China, the world’s second largest economy, has doubled down on its zero-Covid strategy due to recent spikes in infections across the country. Covid cases have been reported in the key port cities of Shenzhen, Tianjin and Ningbo, as well as the industrial hub of Xi’an, resulting in lockdowns and curbs in the largest port hubs.

China reported 58 new Covid-19 cases as of Monday, according to the national health authority. The National Health Commission in its daily update said 40 of the new cases were local infections, with the remaining 18 coming from overseas. Despite having a relatively low number of cases compared to many other places in Asia, Beijing has clung onto its zero-Covid approach. China has a 7-day rolling average of 0.04 daily cases per million people as of Jan. 30 compared with 568.8 for Japan, 290.41 for South Korea and 180.35 for India, according to Our World in Data.

China has the infrastructure in place to quickly decongest — whether it’s at the port or in the supply chain side, said Jain. “However, the chaos created because of this will eventually have an impact on the other side of the ocean,” he added. “That’s why, as long as China maintains this very strict zero-Covid stance, we cannot rule out a disruption time to time as the year progress,” he added.

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A recent University of Tennessee-sponsored survey of leading supply chain executives helped quantify the continued apathy surrounding the proper assessment and management of supply chain risk. For starters, the survey found that none of the companies surveyed use third parties to independently assess their risk, 90 percent don’t even quantify the risk themselves, and while 66 percent acknowledged the existence of corporate officers focused on managing legal compliance, none of these same professionals touched the supply chain.

If HR can be directed to manage against the cost of a potential employee discrimination suit, how did global companies get to a place where they still don’t see the wisdom in protecting themselves against a potential supply chain disaster?

The Port of Tianjin, China’s third largest, just blew up. For companies that rely on that port and that didn’t have a crisis playbook in place, the lessons they’re about to learn could be fatal. If you saw the video of the explosion and are even remotely familiar with Chinese industrial accident rates (70,000 lives lost each year) then you know that the Chinese media is under-reporting the story and that “business as usual” at the Port of Tianjin is likely on indefinite hold.

But here’s the rub: if the Longshoremen at the Port of Long Beach decided to strike unexpectedly next week, the business effects for those without contingency plans could be strikingly similar. That’s how tenuous multi-tier supply chains can be.

Supply chain risk management (SCRM) is defined as “the implementation of strategies to manage both everyday and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity.” It’s yet another operational discipline that technology has recently enabled to new heights, as the ripple effects of a catastrophic supply chain event are not intuitive. In fact, they’re usually mind-boggling.

Read more at Tianjin Catastrophe Reinforces Need For Supply Chain Risk Management

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