Sri Lanka Crisis Update: Shortages Loom, Some Help On The Way

Sri Lanka is girding for potential shortages of food products and fuel in the near future. Citizens have been lining up for cooking gas, automobile fuel since Friday. As the government attempts to stave off complete economic meltdown, the nation has defaulted on debt for the first time in its history. So, much to the chagrin of Sri Lanka’s leaders, the economic outlook remains bleak as the government lifts the state of emergency decree that has been in place since early May. The state of emergency went into effect as a result of violent street protests and riots in Colombo and across the country in late April and early May. The root cause of the unrest was spiraling inflation and other factors of the nation’s economic crisis.

India and Japan will provide emergency relief to the island-nation in a bid to stave off a complete collapse. The first ship laden with food and other material will depart from India on Wednesday. Japan will provide an emergency grant for $3 million worth of medicine and food. These moves also have geopolitical purpose as both nations would prefer to keep Chinese involvement in the Sri Lankan crisis at bay. Tokyo and New Delhi are wary about offering an opening for China to expand its presence and influence in the Indian Ocean region.

Some Passing Thoughts on Supply Chain Vulnerability

Shortages in the United Kingdom are providing plentiful ammunition for many critics with an axe to grind. Brexit opponents were quick to lay the blame directly upon Great Britain’s departure from the European Union. Anti-Globalization activists have pointed out the dangerous vulnerability of Just-In-Time supply chains. Then there is COVID-19 where we are seeing the anti-vax and pro-mandate camps slinging blame for the shortages at each other.

The fact of the matter is we’re in a perfect storm of conditions and circumstances at present. COVID restrictions and mandates, post-Brexit teething issues and supply chain disruptions in other parts of the world have combined and brought chaos to the United Kingdom and other nations. It will be some time before normal conditions return. Even though the UK is receiving the lion’s share of media attention for its fuel and food shortages it is not the only one dealing with shortages. In the United States, most major ports are dealing with extreme congestion. Dozens of merchant vessels sit at anchor off places like Long Beach, Elizabeth, and Dundalk, waiting for extended periods of time to enter and unload. This has resulted in a growing number of shortages across a wide range of sectors in the US. Panic buying has exacerbated the situation as well.

Under normal conditions, Just-In-Time supply chains work efficiently. In short, JIT is an inventory management strategy designed to guarantee fast order fulfillment. Production starts only when an order is placed, and inventory stock shipped out as needed. The onset of the pandemic changed the dynamic markedly. Restrictions, shutdowns, and a growing shortage of workers has plagued Asia where much of the manufacturing is done. This was Patient Zero for the current disruptions, for lack of a better term. 

Modern supply chains were neither designed or intended to weather a storm of conditions like the one we are seeing. Supply chains were not built for this.  Their vulnerabilities have now been made abundantly clear and systematic changes are most certainly on the horizon. Before that time arrives, though, the current storm needs to be handled.

China’s Energy Crisis And Global Supply Chains

As China’s power crisis becomes widespread and continues to slow Chinese producers, the situation there is fast becoming a major threat to global supply chains and markets. With over half of China’s provinces now conserving energy usage, factories are limiting production at a critical time. The holiday shopping season is approaching. Producers and shippers are frantically racing to meet demand for consumer products ranging from electronics to clothes. There has already been a steady stream of supply line-related disruptions recently, resulting in everything from shipping container shortages to significant delays at ports around the world. The energy issues in China threaten to add even more chaos and uncertainty to supply chains in coming months.

The extent of China’s current energy issues remains unknown, yet outside experts believe the problem is long term. One of the prime causes of this situation is a coal shortage. Stockpiles across the PRC are approaching critically low levels. China is the world’s largest consumer of coal, a nation that runs on the dirtiest of fossil fuels. On Monday, the China Electricity Council said in a statement that it will increase the purchase of coal from suppliers at “any price to ensure heating and power generation in winter.” This is a far cry from not very long ago when high coal prices kept Chinese buyers on the sidelines. The consensus at the time was that the existing inventories of coal would be sufficient to weather the storm. Things are different now and China is adjusting to meet the new realities.

Of course, China’s power crisis is not the only worry for global supply chains. The fuel shortage in Great Britain is spiraling out of control and there’s growing concern the effects of it could spread swiftly. We’ll discuss that tomorrow evening.