Ramesh Kumar from Greater Noida
The era of choice for anything and everything at the lowest price point is coming to an end, maybe. Thanks to the Covid-induced supply chain disruption. Customer delight, as we comprehend, is evaporating, courtesy of the outsourcing manufacturing model.
Transportation cost — be it air, road, rail, or sea — is the most significant dampener. Port congestion, paucity of truck drivers, to be specific, have a significant impact on keeping the price point lower. In addition, the significant dependence on China for goods — both consumer and industrial — is spooky. What was touted as the most considerable advantage once upon a time, viz., China, as the world’s manufacturing hub, is turning into a Frankenstein?
All said and done, the sea route is the cheapest even now on a comparative basis vis-a-vis cargo movement by air. But the difference has narrowed down. Any day, a cargo vessel capacity by sea is humungous compared to cargo planes. As a result, the per-unit cost of any item moved goes up. Over the past two years, the cost of a 40-feet container zoomed by 12 times (see graph). Reason: the demand-supply mismatch.
Container vessels are waiting for berths at ports in a long queue. Those who have managed to find a berth face labor and equipment shortages; by the way, not all cranes are deployed, and those working are not functional 24x7 due to Covid. The Covid fear coupled with the unemployment insurance by governments is keeping the port workers at home. After all, health is wealth.
Assuming containers are unloaded, the movement by trucks poses the following challenge due to the lack of drivers. Trucks can’t move on their own. So supermarkets/Hypermarkets catering to the consumers are offering astronomical wages for truck drivers to move stuff from shipyards to their respective warehouses so their shelves will not remain empty and their business can go on.
Bear in mind that at every level, there is a higher payout: higher container charges, port handling charges, trucking rates, driver rates, and whatnot. Who is going to bear the cost? Pass on is the route. There is no other option.
On the other hand, producers, sensing the logistical challenges, are trimming their production matrix to ensure only selected items are produced. There is less challenge in the entire value chain of procurement, production, and distribution to that extent. In the bargain, the choice for consumers gets truncated. And, the delight too.
Just not the choice. Even price pressure very much raises its ugly head. Rising price levels or inflation is inevitable. Containing inflation through monetary policy initiatives would drive up the cost of borrowing and thus affect investment. As it is, investment is not happening. Public pronouncements do not automatically translate into the actual fund flow, which takes time pending formality completion Paperwork. Fiscal measures to stimulate the economy cannot go on forever. When to stop is keeping the central bankers and rulers in a tight spot. Tapering is the mantra they are chanting.
Consumer delight, in the absence of choice and lower price tag, is history. Until the advent of covid, none heard or worried about the ubiquitous supply chain. Today, it is on the lips of all: haves and have-nots equally.
Well, the drama is not over. The covid has not been tamed totally. Vaccination hesitancy is still ruling the roost in several parts of the world, and therefore, the pandemic persists, claiming lives or affecting productivity through workforce shortage at several production sites.
Will normalcy return as was experienced in the pre-Covid times? There are no clear answers. Instead, we hear of another catch-phrase: new normal. Meanwhile, speculation is rife that the crisis will linger for the next 3–4 years. Does it mean the world is inching towards de-globalization and trying to reduce its collective dependence on the Land of Dragon? The desire is there, but the actual task is the timeline. Doable, yes. How soon is the question? Well, that’s another story.
