Global Supply Chains are Easy to Snap

Global Supply Chains Are Dangerously Easy to Snap

The U.K. is preparing for empty shelves in case of a no-deal Brexit, but others may be just as vulnerable.

BY ELISABETH BRAW

 | AUGUST 7, 2018, 4:28 AM

https://foreignpolicy.com/2018/08/07/global-supply-chains-are-dangerously-easy-to-snap/

The British have been discovering this summer that misery most certainly loves company. First came the unusually hot July weather—and then it emerged that the U.K. government was making plans to stockpile food and medicine in case a no-deal Brexit, where the U.K. exits the EU next March without any arrangement in place, caused regulatory and customs chaos.

But the rest of the world shouldn’t snicker at Britain’s misfortune. On the contrary, the government’s stockpiling plans are a wake-up call for any developed country. These countries depend on complex supply chains that stretch around the world—and are vulnerable to disruptions. Global supply chains are, in fact, a national security issue, and one that has been neglected by planners for too long.

“We’ve created a highly concentrated production and distribution system that helps us move stock from A to B to C to D very quickly,” said Terry Marsden, a professor of environmental policy and planning at Cardiff University in Wales. “But we’re beginning to see the cracks in the global system we’ve built, and the no-deal Brexit stockpiling plans highlight that.”

The global distribution system is extraordinarily efficient, thanks not least to the world’s oceans. As the British journalist Rose George documents in her book Ninety Percent of Everything, some 100,000 enormous freight ships transport 90 percent of the world’s trade. Trucks, railways, and distribution centers take over once the goods reach dry land. All of this is extraordinarily cheap. It costs a retailer less to send a shoe to Europe from a factory in Southeast Asia than it does to transport it from a local European warehouse to a shoe store in the same country.

This system means that consumers can enjoy steady supplies of cheap goods from any part of the world. About one-third of the food consumed in Britain, plus a large share of the medications consumed there, is imported from the European Union. Indeed, Britain imports more than it exports in every food category except beverages, and that surplus is due to Scotch whisky exports. In 2016, the United Kingdom imported fruit and vegetables worth £10.3 billion ($13.3 billion), only exporting fruit and vegetables worth £1.1 billion ($1.42 billion). That means that U.K. residents can enjoy fruit from Spain or Chile, electronics from China, beef from Brazil, lamb from New Zealand, and a dizzying range of other items, shipped around the globe every day of the year. Indeed, these supply chains provide the world’s growing middle classes with much the same items, all at a low cost.

When everything works, the supply chains allow distributors and retailers to keep minimal stocks, a model known as just-in-time. In the U.K., for example, many retailers only stock 24 hours’ worth of fresh produce. The system works so well that between 2010 and 2015, 52 percent of U.K.-based suppliers reduced their stock levels, while just 22 percent increased their stock. That, too, helps keep consumer prices low by saving on warehousing costs. At Tesco, Britain’s largest retailer, an orange, whether it’s from Argentina, Chile, Cyprus, Egypt, Israel, Morocco, Peru, South Africa, Spain, Swaziland, Turkey, or Uruguay, sets the consumer back a mere 30 pence (39 cents).

But if someone damaged the supply chains, all of this falls apart fast. That’s why a prosperous country like the U.K. is stockpiling food. In case of a no-deal Brexit—the most likely outcome, according to International Trade Minister Liam Fox—Britain’s access to the EU open market, and thus speedy imports and exports, will be suspended. That will cause long delays at entry points such as the Port of Dover. (According to British media, the Army has been put on standby to distribute food.)

Fortunately, the U.K. has time to plan for a no-deal Brexit meltdown—but an adversary won’t provide any such advance warning.

Fortunately, the U.K. has time to plan for a no-deal Brexit meltdown—but an adversary won’t provide any such advance warning.

Indeed, while there’s much talk about potential Russian military aggression against NATO member states or their partners, President Vladimir Putin could achieve a vastly more devastating result, at minimum expense, by disrupting the supply chains. Cyberattacks—whether perpetrated by a government or proxies—could wreak havoc in companies’ logistics systems, which organize the travel route of every product. Or, an adversary could sabotage harbor operations. For that matter, workers at harbors or distribution centers could simply go on strike. E-commerce is just as exposed as brick-and-mortar chains to supply chain disruptions.

Delivery disruptions are, of course, not a new concern. So limited were supplies during World War II that the British government was forced to maintain rationing after the war had ended. “Is the Minister aware of the hardship which is caused to housewives in view of the shortage of their ration? During the war period they have had no reserves, and really need their soap ration,” Labour MP Jennie Adamson asked Minister of Food John Llewellin during a parliamentary debate in June 1945. But today’s supply chains are so fragile simply because they’re extraordinarily complex, connecting virtually every consumer with goods from around the world. By contrast, most 1940s Europeans—and Americans—didn’t expect daily supplies of exotic fruit at low prices.

But the real challenge may be nature. Britain’s sweltering summer heat, a byproduct of climate change, has already caused shortages of fans and air conditioners in a country unused to scorching weather. After Japan’s 2016 earthquakes, Toyota—one of the world’s largest automakers and a pioneer of just-in-time—had to suspend production at its Japanese factories because it couldn’t get the parts for its cars. In a 2015 report for the Hawaii Department of Transportation, Ian Robertson, an engineering professor at the University of Hawaii, recommends that in case of an earthquake or tsunami warning “every effort should be made to evacuate all ships and barges.” But Hawaiians rely on those very ships for their livelihoods. “Closure of any of the Hawaiian commercial ports for more than a week due to storm or tsunami inundation would severely affect the health and safety of island residents,” Robertson notes in the report.

Disruptions to global supply chains are, in fact, more devastating than a traditional military attack. “We assume that we’ll always have daily deliveries, and consumers have come to rely on it,” Marsden, the Cardiff University professor, noted. “But we only need to look at truck-driver strikes to understand the effects of disruptions to supply chains. The 2000 lorry-driver strike put the fear of God in the [U.K. Ministry of Defense].” Brazilians suffered a similar fate earlier this year, when a trucker strike caused food and fuel shortages. When President Michel Temer responded by sending in the Army, commanders discovered that they, too, were short on fuel. An adversary could bring a country to its knees without dispatching a single soldier.

 

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