The World In 2024: Threatened Supply Chains, Possible Shortages And Galloping Inflation – Analysis

Although the year 2023 was marked by geopolitical instability including the wars in Ukraine and the Holy Land, in the developed world (European Union, USA, Canada), it was a more than good year for large corporations, including global fashion brands and supermarkets.

Last year, they got rid of the stock of goods they had accumulated during the Covid-19 pandemic at increased selling prices due to the present inflation. Thus, for example, Nike and Adidas could sell sneakers produced by their cheap workforce somewhere in Asia in 2020 three years later not for 60 but for 90 dollars. In 2023, large stocks of flour, oil, and sugar that were accumulated in previous years could be sold at inflated prices. This was of course a bad situation for ordinary people in the West who were fighting inflation to survive. However, in 2023, they could at least buy what they wanted if they had the money, and in 2024, even that could become questionable.

Due to unfavorable geopolitical circumstances (wars, conflicts, trade wars), heavy maritime traffic through transit bottlenecks, climatic adversities, shortage of containers, lack of truck drivers and workers in warehouses, problems in industrial production (lack of microchips and other equipment), present negative consequences pandemics, new disruptions in global supply chains are already occurring. This problem, according to the law of the domino effect, generates a shortage of consumer goods on store shelves and increases inflation.

Unfavorable forecasts

According to estimates by the OECD, the IMF and the rating agency S&P Global, inflation at the global level in 2024 should amount to 4.7% without the outbreak of new conflicts or the intensification of existing conflicts. Unfortunately, it seems that the crisis hotspots will not subside until they flare up. World GDP growth of only 2.9% is expected.

Current political, economic and climate trends in the world and forecasts of experts show that 2024 could be a year of difficult global commodity flows and shortages of food, energy and other goods. Thus, in 2024, ordinary people could continue to lose their purchasing power due to galloping inflation and at the same time, they would not be able to buy basic foodstuffs because they would not be on the shelves. UK could be especially affected by shortages. Brits left the EU in 2020, and from this year new laws apply to food imports from the EU. Add to that the lack of truck drivers. Global supply chains during 2024 will be threatened at two key points of world maritime traffic and world trade. It is about the Suez and Panama Canals.

The Suez Canal – a fragile bottleneck

The Suez Canal makes it possible to shorten the navigation between the eastern coast of North America and Europe on the one hand and Africa and Asia on the other. Instead of sailing around the southern coast of Africa (Cape of Good Hope), ships use the Suez as a faster and cheaper route. The canal is crucial for transporting oil and gas from the Middle East region to European and Far Eastern markets.

About 25,000 ships pass through Suez annually and transport 12-13% of world trade and 30% of world container traffic. Navigation through the Suez Canal is threatened due to technical and (geo)political reasons. Technical difficulties arise due to excessive traffic and relatively small width (205 m) and depth (24 m) of the canal. Because of this, the channel sometimes becomes a bottleneck. In March 2021, the canal was blocked for six days due to the container ship Ever Given, which got stuck in the middle of the waterway due to strong gusts of wind and blocked traffic. The blockade of one of the world’s busiest trade routes has significantly slowed trade. At least 369 ships were waiting in line to pass with goods worth $9.6 billion. If this happens again, there will again be a shortage of food, energy, various materials and inflation in the affected countries.

Geopolitical threats to Suez are far more dangerous. In a narrow sense, it is a war between Israel and Hamas, in a somewhat broader sense, it is a conflict between Israel and the Arab and Islamic world. In a global sense, navigation through Suez is threatened by geopolitical tensions between the USA and the EU with Russia and China. Although Egypt is a Muslim country, it normalized relations with Israel in 1980 and has excellent relations with the West and the East.

However, in recent times, during the reign of President Abdel Fattah el-Sisi since 2014, relations with Moscow and Beijing experienced a drastic upswing. If the authorities in Cairo were to radicalize for some reason and worsen relations with Israel and the West (for example, the coming to power of the Muslim Brotherhood) and close the Suez Canal to Western ships, it would be a change of tectonic significance. Even if the authorities were only to slow down Suez navigation, it would have a strong negative impact on global commodity flows and there would be shortages of food and other necessities in Europe, Asia, N. America and elsewhere. The war in Gaza increased natural gas prices at the end of December. Renewed fears that the war could spread into a regional conflict are helping gas prices rise.

Difficult navigation in the Red Sea

The transit route through Suez has already been threatened by Yemeni Houthi attacks on Western ships in the Red Sea in retaliation for the Israeli campaign in the Gaza Strip. Because of the Houthi attacks, many major shipping lines have already canceled Red Sea sailings in December – Hapag-Lloyd, Evergreen Line, Maersk, CMA CGM and MSC – and diverted their sailings to the Cape of Good Hope. Maersk and CMA CGM started sailing again in the Red Sea and other shippers are questionable even though an international military-naval operation, Operation Guardian of Prosperity, was launched under the leadership of the USA to normalize the navigation in the Red Sea.

Maritime transport costs will continue to rise regardless of whether shippers use the Red Sea or send ships via the longer, more expensive route across southern Africa. In recent days, Maersk, CMA CGM and Hapag-Lloyd have announced new freight rates for transporting goods along many of the world’s busiest trade routes. Higher freight rates mean higher commodity prices.

The Panama Canal – a vital transit route at risk

The Panama Canal is also extremely important. It is a key point that connects the Atlantic and Pacific oceans. The canal is a strategic transit point that enables faster and more economical cargo transportation between the industrial East Coast of the USA and Asia without the need for ships to sail around South America and its southernmost part of Cape Horn and Tierra del Fuego (The Strait of Magellan). Also, the canal makes it easier for goods to come to Europe from the western part of South America. 14,000 ships pass through the canal annually, which accounts for 6% of world trade.

The role of the channel has further increased amid the difficult global supply chains during the corona crisis and the US-China trade war. The canal is threatened by low water levels during droughts due to climate change, which was evident last summer. The canal administration was forced to limit the number of ships that sailed through the canal. In addition to climate problems, the functioning of the Panama Canal could be threatened by the tightening of relations between the US and Latin American countries, mainly due to the growing migration crisis on the border between Mexico and the US. Panama is a transit country for migrants who want to come to the US. If for any reason navigation in the canal is disrupted or interrupted, it could lead to shortages of food and other necessities in the USA, Europe and possibly Asia. Of course, the rise in commodity prices is inevitable, as is inflation.

Mexico – the main trading partner of the USA

This is where we come to the complex Mexican-American relations that have an impact on the whole world. As a result of the US-China trade war, US and European importers are largely moving their industrial complexes from China (the world’s main exporter) to alternative locations: Vietnam, India and Mexico. Bottlenecks in supply chains also arise in trade with these countries, but businessmen from the West consider them a better choice than China.

During 2023, Mexico passed China to become the leading trading partner of the United States. In the fiscal year from July 2022 to July 2023, the two countries’ trade in goods amounted to USD 462 billion. Trade with Canada amounted to 450 billion USD, and with China only 322 billion USD. China has been the leading trading partner of the US for many years, but that changed in 2019. The trade war between Washington and Beijing initiated by Trump resulted in the introduction of tariffs. Ultimately, the effects of the pandemic and the continuation of the trade war under Biden prevented China from returning to the position of the main American partner.

Sensitive US-Mexico relations

At the same time, the development of US trade with Mexico is steady. Americans import from Mexico vehicles, electrical components, oil and gas, audio and video equipment, various beverages, optical and medical equipment, and household appliances. For example, heavy tractor orders from Mexico in November rose more than 150% compared to 2022. US exports to Mexico include electricity, petroleum, coal products, motor vehicle parts, computer equipment and electronic components.

American logistics experts believe that US demand for Mexican goods will continue in 2024. This is true, but the problem is political relations between Washington and Mexico City. They are becoming increasingly tense over the simmering migrant crisis at the US-Mexico border. Trade interruptions at the border are becoming more frequent. U.S. Customs and Border Protection has spent the past months intermittently closing rail and road crossings so it can divert personnel from border crossings to assist Border Patrol agents as they battle new waves of illegal immigrants.

It is not news that many prominent American politicians openly threaten Mexico with a military invasion while the Mexican government headed by President Andres Manuel Lopez Obrador is building better relations with Russia and China and other BRICS countries. If trade between Mexico and the US is disrupted, the rest of the world will feel it.

The importance of crisis logistics management

Companies that have proven to be able to successfully manage logistics during the Covid-19 crisis are more prepared for possible disruptions in global supply chains in 2024. More precisely, those companies that have developed a new crisis logistics strategy during the pandemic are more capable of new difficulties in supply chains due to political, economic, climatic or other reasons. Startup and established companies are creating new logistics routes based on the use of renewable energy sources and alternative fuels (electric and hybrid vehicles, ethanol, biodiesel, sustainable aviation fuel – SAF, hydrogen…).

Disruption to commodity flows forces businesses to make changes to their operations to make them sustainable and resilient to trade disruptions. Disruptions in global commodity flows (from consumer goods to semiconductors) are already affecting freight flows and national supply chains. Businesses move their goods from ports to factories and retail markets. Goods cannot stay in the port for a long time because they interfere and block traffic and must be moved. Successful companies introduce diversification of their supply chains with a crisis logistics strategy in mind. They find more sources of equipment and raw materials, increase the number of production centers, build factories closer to the market, improve relations with suppliers and logistics service providers in order to achieve mobility and flexibility.

“Supporting friends”

Some countries react to negative circumstances by introducing the concept of “supporting friends” and intensifying cooperation with countries with which they share common values. For example USA and Canada or China and Russia. This concept implies the ability to quickly adapt transport operations and routes in response to market changes, natural disasters or geopolitical changes. Through flexible contracts with suppliers, local and regional manufacturers, and micro-supply chains, companies and countries become ready to navigate disruptions in global supply chains.

Food prices in 2024

Foods that could become more expensive globally in 2024 are: meat (beef, veal, pork and to a lesser extent poultry), dairy products, fats and oils, sugar, sweets, rice, processed fruits and vegetables, soft drinks. Foods that should remain at the same level or become cheaper include: eggs, fish and seafood, fruits and vegetables, cereals and bakery products.

Expected positive developments in supply chains

Not everything is so dark and there are good forecasts. According to estimates, in 2024 artificial intelligence will continue to optimize supply chains, with machine advancement and predictive analytics taking center stage. This should reduce costs, improve efficiency and the ability to detect and resolve problems before they disrupt global flows.

The impact of artificial intelligence will include intelligent sourcing, inventory management and optimization of logistics routes. The global nature of modern supply chains makes them vulnerable to cyber threats that transcend geographic boundaries. Therefore, cyber security will be key this year. Companies will intensify investments in IT infrastructure to protect operational performance and data integrity.

Supply chains will become increasingly intelligent. In retail supply chains, traceability, tracking and visibility will reach new levels in 2024. Artificial intelligence and smart machines will offer real-time insights and predict future events, helping businesses avoid delays and bottlenecks. Route planning for electric vehicles will greatly improve the last stage of the supply chain: it will reduce fuel consumption and speed up arrival times. The advantages of using AI include sophisticated visibility of goods during transport, increasing the efficiency of work in the warehouse and reducing transport costs.

Conclusion

Due to geopolitical instability, difficult maritime traffic, lack of containers, truck drivers and workers in warehouses, and problems in industrial production, new disruptions in global supply chains are predicted this year, as well as possible shortages and rising inflation. Sudden shocks and changes during the year will present a challenge to shippers, ports, freight forwarders, carriers, logistics companies and countries who will have to reallocate their resources in accordance with the redirection of cargo flows and ambivalences in demand. Artificial intelligence and advanced logistics solutions can help them to optimize supply chains. Cybersecurity is becoming essential, and innovations such as real-time monitoring and predictive analytics are helping companies deal with unpredictable situations.