Agricultural input costs have risen sharply . This is partly due to Russia and Ukraine , which are among the world ’ s largest exporters of some commodities such as wheat and sunflower ( oil ), having production cut and exports halted due to the war and partly due to the oil crisis which not only affects costs for planting , maintaining , and harvesting crops , but also of fertilizers where , for example , the nitrogen component is generally produced from natural gas .
So , what does the future look like for supply chain constraints ?
Certainly , shipping congestion is easing and that factor fuelling costs has dropped . Offsetting this to a degree is the higher fuel costs , but the overall costs are still 12 to 15 % down on a year ago , while shorter shipping times and delays means importers can reduce buffer inventory levels .
Specifically on the semiconductors side , the USA is increasingly concerned about China following Russia ’ s example and invading Taiwan – the major source of chips for many businesses around the world , with that country ’ s TSMC producing more than half of global chip supply and more than 90 % of the most advanced ones . This has led to Congress recently passing a bill ( the CHIPS for America Act ) which will lead to a greatly increased focus on domestic chip manufacturing to decrease dependence on Taiwan . This will also , of course , lead to a reduction in the current global supply constraints which are affecting so many industries .
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Guy Whitcroft works with successful owner-led businesses to enhance their growth , profitability , cash flow and business value . If you ’ d like to have a conversation about your business , inflation , and risk , book a free 30-minute call with me here . I would be delighted to talk with you .
So , these are both areas of good news for global supply constraints .
However , on the negative side , China continues to impose short-notice severe area-wide lockdowns which continue to impact various industries and , of course , shipping , while the Ukraine-Russia conflict will continue to impact wheat and sunflower oil supplies , amongst others , as well as oil and gas supplies , particularly to Europe , which will have a ripple effect on industry and agriculture there .
But , overriding all of this is the impact of rapidlygrowing inflation on the global economy . As inflation rises , central banks will continue to aggressively raise interest rates to cool economies , having learnt the painful lessons from the 1970s of not doing so . This is almost certain to cause a recession with Moody ’ s Analytics Chief Economist Mark Zandi putting the chances of a US recession in the next 12 months at 55 %. Given that the Chinese economy is expected to grow more slowly than the US one this year , and the problems in Europe , this signals a major global drop .
So , demand is expected to drop noticeably removing any last vestiges of supply constraints – at least until the recession is past – but slowing demand and rising costs bring their own problems , of course .
Essentially , then , the need for careful risk management is paramount . If you ’ re not already having monthly board meetings with risk and strategy taking a central point in discussions , you should start doing so without delay . Understand what your competitors and the markets as a whole are doing . Look at various possible scenarios and have at least outline plans in place for each , drawing on the expertise of those who ’ ve previously experienced high interest rates and sharp contractions in business to help you with this . Remember , too , the 5Cs . . . .
And remember , that many of today ’ s largest and strongest businesses rose in tough times – it ’ s about planning , not despair . p
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