Just as supply chain disruptions occurred synchronously across most of the globe early last year, the same holds true for the economic recovery movement in the post-pandemic scenario.
Companies in developed economies in recent months have been forced to operate with extremely low inventory levels and, due to the lack of demand predictability coupled with market uncertainties, were driven to cancel order schedules with their suppliers, causing a systemic impact on their respective supply chains.
According to the OECD – Organisation for Economic Co-operation and Development, Brazilian exports increased by 29.4% between the first and second quarters of 2021. Russian exports grew by an impressive 30.7%.
What do these countries have in common? Both are major commodity exporters, benefiting from a triple combination of rising prices, constrained global supply, and strong demand. Furthermore, the greater attractiveness to international trade due to the appreciation of the dollar must be considered.
As many emerging countries shifted their commercial strategy toward international clients due to greater exchange rate attractiveness (dollar revenues), they reduced the availability of inputs and services in domestic markets. As a result, there was a forced price increase driven by competition for the order books and sales schedules of export-oriented companies.
Global exports surpass pre-pandemic levels
Regarding the global logistics scenario, the Covid-19 pandemic highlighted that ports need new investments and increases in operational efficiency. Port infrastructure systems were overwhelmed last year, with several regions experiencing rising costs for both exporters and importers.
Currently, for example, there are 353 container ships waiting outside ports worldwide. That is more than double the figure from early 2021.
Container supply disruptions – Number of ships waiting to dock at ports in August 2021
In August 2021, the current landscape of metal commodities was reported, with copper and aluminum prices reaching their highest levels in 10 years. As global demand for materials and services resumed growth, the impact was immediate. Consequently, the pandemic recovery has ranged from electrical materials to packaging. Aluminum prices, for example, rose 31% in 2021, recently reaching a closing high of US$ 2,615.00.
Rising prices are a welcome relief for an industry that has suffered for years from oversupply amid China's relentless expansion. Shares of the world's largest aluminum producers rose double digits this year, with Alcoa climbing 68% and Europe's Norsk Hydro advancing 47%.
Aluminum and Copper price variation ($/Ton) over the last 10 years
Aluminum
Copper
Passing costs onto the next buyer in the supply chain—whether for resale or even to the end customer—is the primary objective of manufacturers right now. However, this may be less attractive for companies attempting to keep prices competitive in order to retain or gain market share.
However, not all cost increases are inevitable. Buyers always have the ability to negotiate with suppliers and manage inflationary pressures using tools such as surcharges, for instance, which can be removed later, and by requiring suppliers to provide greater cost transparency.
If companies are unable to pass on costs, they consider tactics such as alternative suppliers, process automation, or even traditional cherry-picking practices.
However, companies seeking to switch suppliers must consider switching costs. Some businesses may look for suppliers as close as possible in the current market in an attempt to reduce logistics costs.
What matters most now is the reliability and resilience of supply chains. The big question Procurement professionals must answer at this moment is: “How reliable is supply from your current sources?”
Source: FT/LME
