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Weekly Roundup - Choke Points, Transformative Potential and Germanys Supply Chain Act

Yulia Fedorova

19 Jan 2024

The recent military strikes in Yemen aim to protect global trade by preventing Houthi attacks on merchant vessels in the Bab el-Mandeb strait. The significance of global supply chains and maritime choke points has increased since the 1970s, making disruptions in the Red Sea and other critical trade routes more impactful. Disabling major choke points like the Suez Canal or the Malacca Strait could have severe global consequences, as demonstrated by the 2021 Suez Canal blockage. Current disruptions include a decrease in shipping volume through the Suez Canal and limitations in the Panama Canal due to intense drought. Potential threats to the global economy include the possibility of a disruption in the Strait of Hormuz, a critical choke point for global oil and gas transportation. The military actions in Yemen send a signal of commitment to defending global trade routes and indicate readiness to protect other vital choke points. Iran's potential blockade of the Strait of Hormuz could lead to severe global backlash, highlighting the complex and far-reaching implications of disruptions in these crucial maritime passages.

The Economist Impact and DP World study presented at the World Economic Forum in Davos reveals that despite escalating geopolitical tensions, business leaders are optimistic for 2024, driven by the belief in technology's transformative potential for supply chains. The widespread adoption of AI, with 98% of executives leveraging it to revolutionise supply chain operations, reflects this optimism. Companies are increasingly turning to friend-shoring and dual supply chain strategies, with over a quarter opting for fewer suppliers to enhance resilience. Economist Impact forecasts a 0.9% drop in global GDP if trade tariffs on high-tech goods increase significantly, underscoring the potential economic impact of geopolitical trade barriers. The need for governments to reduce trade friction and collaborate with the private sector to deploy technological advancements is crucial for greater efficiency and adaptability in global trade.

Germany's Supply Chain Act now requires companies with at least 1,000 employees to adhere to human rights and environmental due diligence obligations, a significant decrease from the previous threshold of 3,000 employees in 2023. However, this increase in regulation has been met with criticism, with companies expressing concerns about the additional bureaucratic burden, particularly amid existing economic challenges. Violating the law could lead to substantial fines or exclusion from public contracts, further intensifying the pressure on affected companies. There are worries that the act may lead to decreased supply chain diversity as companies opt for less risky but more expensive suppliers in developed countries, potentially resulting in cost escalation. The European Union is also set to introduce a stricter framework, initially targeting companies with 250 employees or more, signalling potential wider-reaching implications for businesses in the region.

According to a recent KPMG insights report, the supply chain management landscape is experiencing significant transformations driven by technological advancements and evolving business requirements. These changes include the adoption of low-code platforms by more than two-thirds of enterprises, demonstrating the potential for automation and integration within supply chains. Additionally, the focus on ESG and Scope 3 emissions has become prominent, with the collection and reporting of Scope 3 emissions data becoming a legal requirement in many countries. Moreover, limited visibility of tier-one supplier performance poses a challenge, with only 43% of organizations having limited to no visibility of tier-one supplier performance. The utilization of low-code platforms is highlighted as a solution to automate supply chain tasks and swiftly adapt applications to new market conditions and disruptive events. Furthermore, high-performing supply chain organizations prioritize the role of the chief supply chain officer as a strategic business partner, emphasizing the need for strong alignment between the CSCO and their C-suite peers. The report also suggests actions to drive top-line growth, establish sustainable operations, and design a real-time decision roadmap and digital technology plan to benchmark against top-performing organizations.

Read more on recent highlights
Dive deep into research

"Adapting to disruptions: Managing supply chain resilience through product rerouting" by Ambra Amico et al. (2024)

"Exploring supply chain finance along different supply chain stages: a case-based research in the agri-food industry" by Elisa Medina, Federico Caniato, Antonella Maria Moretto (2023)


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Weekly Roundup