There is a cost-push inflation coming along; the major challenge is the global logistics and the fragmenting of supply chains. We have traditionally built a global factory with conveyor belts running from country to country, through our ports, shipping routes and the vessels. The geopolitical struggles over the past decade have gradually weakened the links as people started focusing on building local supply chains to enhance resilience.
The pandemic worsened things further as countries going into lockdowns tend to disrupt their segment of the global supply chain and hence the next stage of the global factory have to spend time and effort reconnecting with other sources in order to keep things going. It has not been a pretty picture but because of that, the configuration of those conveyor belts have changed and been rewired.
This continues to happen as other forces manifest: pressure to decarbonise the value chain, government policies to reduce migration or enhance local employment, emergence of new technologies replacing the old. Consider the fact that a large proportion of vessels across the oceans are actually carrying coal where they were mined to where they’ll be burnt for power. When coal power gradually phase out across the world, the vessels are going to have to be out of business or carrying something else. The supply of power will gradually shift towards other fuel types. And most of the other fuel types are unlikely to use the same carriers.
Where companies have an efficient, vertically integrated supply chain, they bring with them great strategic value where they are able to continue their operations and deliver goods even as the market for intermediate goods or functions starts weakening. For all the environmental harm that has been brought on by oil & gas companies, their ability to coordinate supply chains, logistics and set up intermediate markets to enhance efficiencies of their supply chain is something that has to be picked up by other industries to move the world beyond the current cost-push inflationary challenges.