The COVID-19 Pandemic, Global Supply Chains and Addressing Vulnerabilities

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15 December 2021, 10:40 a.m.

Disponible en français.

The global COVID-19 pandemic has had a profound impact on the demand for and supply of many goods and services. While demand for some categories of goods and services has declined, the reverse is true for others. From a supply perspective, lower production for reasons such as shortages of labour and manufacturing inputs, and COVID-19–related trade restrictions are among the factors affecting domestic and foreign supplies of goods and services.

This HillNote examines some of the impacts of the pandemic on the global supply chains on which firms rely to produce and ship goods and their inputs. These impacts include:

  • decreased production;
  • container shortages and bottlenecks at key ports;
  • shipping delays and costs; and
  • border closures.

It also considers selected government actions being taken or considered concerning supply chain vulnerabilities, particularly in such areas as:

  • evaluating the ability of some sectors to recover from supply chain disruptions;
  • increasing domestic production capacity;
  • negotiating and implementing relevant agreements; and
  • promoting international cooperation.

Decreased Production

According to Global Affairs Canada, the pandemic’s initial impact on global supply chains became clear when plants in some manufacturing hubs – including in China, South Korea, Taiwan and Viet Nam – reduced production or shut down because of public health-related measures. The limited supply of foreign manufacturing inputs affected production in Canada.

Global Affairs Canada has indicated that the integrated nature of their supply chains led Canada’s automotive, machinery and electronics sectors to be among those most affected by domestic and foreign plant shutdowns at the beginning of the pandemic.

Container Shortages and Bottlenecks at Key Ports

The Bank of Canada’s October 2021 Monetary Policy Report suggests that global supply chain disruptions are partly related to container shortages and bottlenecks at key ports.

Container shortages partially reflect increased consumer demand for imported manufactured goods, and bottlenecks are a consequence of labour shortages. These challenges are leading to some delivery delays and higher shipping costs, with implications for inflation.

Shipping Delays and Increased Shipping Costs

According to the Review of Maritime Transport 2021, in May 2020, global schedule reliability – vessel arrivals within one calendar day of the scheduled arrival – was 75%. In May 2021, this proportion was 39%, and the average delay for late vessels was six days, down from the February 2021 peak of seven days.

As shown in Figure 1, global shipping costs – as measured by the Freightos Baltic Index – have risen since the pandemic’s onset.

Figure 1 – Freightos Baltic Index, 6 March 2020 to 12 November 2021 (US$)

Figure 1 shows an overall increase in the Freightos Baltic Index, a measure of global shipping costs, from US$1,358 on 6 March 2020 to US$9,411 on 12 November 2021.

Note: The Freightos Baltic Index (FBX) is based on freight rates for ocean container transportation along 12 trade lanes. Higher FBX values are associated with higher shipping costs.
Source: Figure prepared by the Library of Parliament based on data obtained from Freightos Ltd., Freightos Baltic Index (FBX): Global Container Freight Index, Database, accessed 15 November 2021.

Border Closures

To slow the spread of the COVID-19 virus, many countries have implemented measures to limit travel, with some temporarily closing internal and international borders. Travel restrictions have led to cancelled passenger flights and reduced air cargo capacity. These measures have also affected the movement of goods across international borders.

In March 2020, the Government of Canada announced measures limiting the entry into Canada of certain individuals. Since September 2021, international travellers have been able to enter Canada if they are fully vaccinated and show a pre-entry COVID-19 molecular test. Certain groups of travellers, such as truck drivers who transport goods, have been exempt from these entry restrictions and have been able to enter regardless of their vaccination status. This situation will change beginning in January 2022, when they must be fully vaccinated before they can enter Canada.

With the recent identification of the COVID-19 omicron variant, the Government of Canada has announced temporary border measures to be applied in relation to travel from some countries in Africa.

Evaluating the Ability of Some Sectors to Recover from Supply Chain Disruptions

To address supply chain vulnerabilities, governments could work with sectors that provide essential goods and services to evaluate their ability to recover from supply chain disruptions.

For instance, consideration might be given to studying the potential impact of export restrictions, diversifying suppliers of manufacturing inputs and creating mitigation strategies, such as stockpiling goods susceptible to supply disruptions.

According to a March 2020 Global Affairs Canada research paper, Canada imported almost 10,000 different goods in 2019, of which more than 2,000 were identified as “vulnerable” to supply chain disruptions. These “vulnerable” goods are in such sectors as agri-food, chemicals, fertilizers, metals and minerals. The paper notes that Canada has diverse import sources for pharmaceutical products and medical supplies, and limited alternative suppliers for certain essential goods, such as defibrillators.

Increasing Domestic Production Capacity

At an April 2020 event co-hosted by the World Health Organization, it was suggested that governments should “consider increased domestic production capacity as an insurance for the next pandemic.”

However, this type of production could be costlier than foreign production. As well, because of vulnerability to unforeseen events, such as power failures or natural disasters, domestic production does not guarantee a reliable supply.

During the pandemic, some governments were focused on enhancing domestic production of certain medical goods. A June 2021 Global Trade Alert report states that 42 governments implemented 194 subsidies between 1 January 2020 and 31 March 2021, with the goal of increasing domestic production of these goods.

Negotiating and Implementing Relevant Agreements

An October 2020 Conference Board of Canada research paper predicts that regional free trade agreements “will become more important in the post-COVID world.” For instance, increasing the number of Comprehensive and Progressive Agreement for Trans-Pacific Partnership partners might help Canadian firms to diversify their input suppliers.

As well, implementation of the Agreement on Trade Facilitation by World Trade Organization members might help to expedite the movement of goods, including those that are essential for combating the COVID-19 virus and its effects. Canada ratified this agreement in December 2016.

Furthermore, negotiating agreements about the sharing of critical goods, including personal protective equipment, might help governments to limit or eliminate disruptions in the supply of such goods.

According to the Organisation for Economic Co-operation and Development, lending agreements and joint procurement agreements, as well as regional or bilateral standardization of procurement procedures, can simplify international transactions, facilitate “the sharing of goods and inputs,” and improve buying power, particularly for small jurisdictions.

Promoting International Cooperation

International cooperation can help to enhance countries’ confidence that supply chains will function and trade will continue, including during a pandemic.

In 2020, Canada joined a number of countries in issuing a joint statement affirming their commitment to maintaining “open and connected supply chains” as part of their collective response to the pandemic.

As well, in February 2021, U.S. President Joe Biden and Canadian Prime Minister Justin Trudeau announced – as part of the Roadmap for a Renewed Canada–U.S. Partnership – a strategy to “strengthen Canada–U.S. supply chain security.”

More recently, during the October 2021 G20 Summit, Canada participated in the Summit on Global Supply Chain Resilience.

Conclusion

Consideration of the lessons learned from the COVID-19 pandemic can help governments identify and prioritize future actions.

In the context of global supply chains, the decisions that governments make – alone, together and with stakeholders – regarding supply chain vulnerabilities will help to determine how well supply chains function during future challenges.

Additional Resources

Organisation for Economic Co-operation and Development. “Global value chains: Efficiency and risks in the context of COVID-19,” OECD Policy Responses to Coronavirus (COVID-19), 11 February 2021.

United Nations Conference on Trade and Development. Container Shipping in Times of COVID-19: Why Freight Rates Have Surged and Implications for Policymakers, Policy Brief No. 84, April 2021.

Van Assche, Ari. Shortages in essential goods: Are global value chains part of the problem or the solution? Policy paper, University of Calgary School of Public Policy and Canadian Global Affairs Institute.

Authors: Simon Richards, Bashar Abu Taleb and Offah Obale, Library of Parliament



Categories: COVID-19, Industry and Trade, International Affairs and Defence

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