Throughout much of history, the global supply chain’s efficiency was significantly limited by geography and, in some cases, restrictive international trade policies. Today, that is no longer the case. Free trade agreements have opened up once-closed borders for the exchange of goods and services. At the same time, businesses and consumers have come to expect that raw materials and finished products can be moved around the world on a scale and at speeds that were previously unimaginable. Regardless of your time zone, supply chain failures and innovations in one region now have the potential to reverberate half a world away, dramatically reshaping local markets as well as the global economy.
The European Union (EU), for example, accounts for approximately one-sixth of the global GDP. As a result, Europe’s supply chain has the potential to affect consumers and businesses far beyond the continent. With that in mind, here are a few insights into how the European supply chain has fared during recent disruptions — and how it may be poised to influence the global economy in the months and years ahead:
Port bottlenecks
Strains in the global supply chain have been impacting business cycles since the beginning of the pandemic. In Europe, as throughout the rest of the world, this tension quickly led to growing port congestion and delays. The lack of end-to-end traceability and digitization capabilities are additional factors cited as root causes of Europe’s supply chain woes. Although pandemic-related pressures on European ports have eased since then, other challenges — such as strikes by port workers in France and the U.K. — have placed new challenges on the regional supply chain.
Now three years removed from the COVID-19 outbreak, these conditions have improved at EU ports, but they are still not quite back to pre-COVID levels. For instance, the Netherlands’ Port of Rotterdam, Europe’s largest seaport, handled 435 million metric tonnes of freight in 2021. This is an increase from 2020 levels (409 million tonnes), but below 2019’s total (439 million tonnes) according to EU data. Belgium’s Port of Antwerp-Bruges also handled more freight in 2021 than in 2020, but still less than in 2019.
It is worth noting that 2023 may be the year when EU and U.S. supply chains begin interacting more closely than ever before. Trade activity between the continents has recently surged. As the Wall Street Journal reported, exports from Germany to the United States rose almost 50% in September 2022 compared to a year earlier. Finally, in 2022, U.S. ports handled more cargo per month from Europe than from China.
Shortages in raw materials and semiconductors
A comprehensive Raw Materials study conducted by INVERTO found that European supply chains are facing rapid price increases and supply shortages of raw materials. Some of the shortages seen in the European market today include plastic, cardboard, steel, tin, textile, leather, and wood. Nine out of ten companies are reporting that raw material prices will continue to have a strong impact on business performance, and 77% believe the reduced availability of raw materials will have the same effect. While the causes behind these shortages can be attributed to several key factors, dependable and unrestricted access to certain raw materials will prove a significant concern within the EU and across the globe moving forward.
In addition to a scarcity of raw materials, European supply chains have been hit by severe shortages of semiconductors. This is due to the accelerated demand for electronic products and equipment, which the available supply is struggling to accommodate — particularly within the automotive industry. Semiconductor shortages have already impacted the continent considerably, with vehicle production dropping by 2.3 million units in 2021 against initial projections. This problem is not restricted to Europe, of course. Global semiconductor shortages have had adverse effects on companies and economies elsewhere as well. In the U.S. alone, lawmakers in 2022 earmarked $52 billion to support the country’s semiconductor industry with the goal of making U.S. organizations less reliant on overseas suppliers.
Persistent inflation and poor visibility
On top of material shortages, surging prices have also gripped much of Europe. In November 2022, for example, the Euro annual inflation rate was 10.1%, up from 5%, according to Eurostat. Within some EU member states, the rate of inflation has hit record highs recently, including Hungary (25%), Latvia (20.7%), and Lithuania (20%). The staggering increases in prices, especially for foodstuffs, are largely attributable to the ongoing war between Russia and Ukraine. Both countries are major wheat exporters, and food prices have skyrocketed. As a result, businesses have been forced at times to use alternative food sources, absorb the costs, or use different suppliers, according to Eurostat. Within some EU member states, the rate of inflation has hit record highs recently, including Hungary (25%), Latvia (20.7%), and Lithuania (20%). The staggering increases in prices, especially for foodstuffs, are largely attributable to the ongoing war between Russia and Ukraine. Both countries are major wheat exporters, and food prices have skyrocketed. As a result, businesses have been forced at times to use alternative food sources, absorb the costs, or use different suppliers.
When considering a change of suppliers, however, businesses must be mindful to avoid those providing poor visibility into supply chain activity. According to the State of the European Supply Chain from FourKites and Reuters, a survey of over 450 supply chain leaders across Europe, one of the most pressing challenges today is the lack of supply chain visibility across Europe. Without a clear view of inventory and activity, businesses are susceptible to a host of repercussions including delays in delivery, loss of productivity, rising costs, inventory shortages, non-compliance, poor customer experiences, and more. Considering this, organizations across the EU supply chain are in search of solutions that offer real-time, end-to-end supply chain visibility.
Extreme weather
An inevitable challenge for the European supply chain is the weather. With climate change causing major storms and flooding to become more frequent and intense, maritime supply chains in Europe have already been impacted. Perhaps the best example is the Rhine River in Germany, The Rhine is considered by many to be Europe’s most important commercial waterway given its geographical location and the thousands of vessels that navigate the river during an average year.
For the past two years, extreme rainfall (2021) and severe drought (2022) led to massive shipping delays along the Rhine for logistics organizations and other major shipping entities. In response to climate-related concerns, the United Nations’ International Maritime Organization (IMO) is now requiring ships to measure their energy efficiency and start collecting data, so they can more easily track carbon emissions. IMO Secretary-General Kitack Lim reports that reducing greenhouse gas emissions is a significant way to both combat climate change and harden Europe’s maritime supply chains.
The new reporting and tracking requirements took effect on January 1, 2023. Supply Chain Brain noted that more of these kinds of laws and sustainability regulations are likely to be implemented over the next 10 years throughout the world — not just in Europe.
Why is a well-oiled supply chain in Europe so important?
The supply chain is the lifeblood of every product-based business and industry, and it is the nerve center of the European economy, which relies heavily on imports of parts and components from other countries. According to the European Parliament, imports of those goods recently accounted for 65% of total trade. Disruptions not only lead to delayed deliveries, increased costs, and decreased customer satisfaction but also have crippling effects on the vitality of the economy — leading to billions of Euros in lost GDP.
The global supply is highly interconnected, and Europe is a hub for international trade, with a vast network of suppliers, manufacturers, and distributors across the continent. As a result, the performance of the EU supply chain will inevitably impact supply chains around the world.
Today, businesses need tools, resources, and support that mitigate common challenges and promote a well-functioning supply chain long-term. Inspirage can help you digitally transform your supply chain, so it is highly efficient and prepared for whatever disruptions lie ahead. Contact us today to learn more about our customized solutions and world-class Oracle Cloud expertise.
