Fragility of supply chains and the opportunity of regionalisation

The supply chains are vulnerable. The incident that is happening these days with the ship stuck in Suez Canal clearly shows the risks involved in transporting large volumes of goods over big distances. For the shippers the associated risks are an expense that should, and I would predict that it will, be included in their cost calculation to a greater extent.

Image source: BBC

As some of the developing countries are reaching higher development levels, which is associated with higher labour costs in the manufacturing sectors, companies are considering production relocation in order to save costs. This shifts production from the most advanced developing countries, e.g. China, to the less advanced ones. One of the main beneficiaries currently is Vietnam due to its cheap labour and manufacturing heritage. Countries like Indonesia, Laos and Cambodia are also benefitting.

The rising supply chain costs are also presenting opportunities for other countries that are closer to the main consumption markets, like Mexico and Turkey for the United States and Europe. In the next years I think this could result in greater regionalisation of supply chains, where the production and consumption location is within the same world region.