COVID-19 Survey: Supply Chain Impacts and Post-Pandemic Adjustment Strategies

COVID-19 Survey: Supply Chain Impacts and Post-Pandemic Adjustment Strategies

Executive Summary

On January 23, 2020, authorities in China issued a lockdown for millions of people in Hubei province and its capital Wuhan, as the number of fatalities due to a novel coronavirus started to rise. This marked the first of many key developments in a global effort to contain the spread of what was later named COVID-19, an infectious disease caused by a newly discovered coronavirus.

12 months later, the COVID-19 pandemic continues to upend social and human interactions and cause a profound impact on complex, global manufacturing networks. Waves of localized outbreaks, regional or nationwide lockdowns, and ongoing disruption to supply and demand alike still pose new and unprecedented challenges that organizations need to respond to by adapting their business operations to keep supply chains running.

As a leading supply chain risk management solution, Everstream Analytics is constantly looking for ways to provide its customers with actionable insights to help drive better business decisions and navigate challenging situations. To this end, a customer survey on the impact of the COVID-19 crisis was initiated to understand what actions companies are taking to mitigate operational disruptions amid the persistent uncertainty that is likely to continue throughout 2021.

The survey was launched at the end of 2020 and received 195 responses, from supply chain professionals spanning across multiple sectors and regions, on the impacts that the COVID-19 pandemic has had on their supply chain operations. The views presented here come from companies active in the technology, life sciences & health care (LSHC), aerospace, consumer goods, and automotive industries, among others.

Key findings from the study show that:

  • More than 98 percent of respondents said that COVID-19 has affected them to some degree, highlighting the profoundly disruptive impact of the pandemic on global supply chains and underlining its uniqueness, compared to past disasters such as the Fukushima earthquake, with supply chain disruptions not being confined to a particular location or a type of component.
  • When asked to name the most significant short-term challenges in the next 3-6 months, all respondents expressed that, first and foremost, demand shocks and surges would remain the most significant challenge. This was followed by supply shortages for critical materials and/or components (97 percent) and cargo capacity shortages (90 percent), which respondents said would very likely also remain a considerable risk in the coming months.
  • Almost two-thirds of all participants (63.1 percent) mainly struggled with air freight capacity shortages and flight disruptions, illustrating the exceptional impact of COVID-19 on air cargo supply chains. In a bid to keep supply chains running, companies responded to this disruption by paying premium air cargo rates (37.4 percent) to have critical shipments uplifted from origin points amid the collapse in international air travel.
  • When asked to name an alternative mode of transportation organizations would continue to use even after the pandemic, the most frequent answer was ocean cargo services instead of air cargo (24.1 percent), indicating that while most companies were primarily focused on using air cargo to keep supply chains running in 2020, a large share also plans to shift away more transportation to ocean cargo services in the future. In fact, most companies that chose to consider using more ocean cargo services instead of air came from the LSHC sector (23.4 percent).
  • When it comes to moving sourcing/manufacturing out of China, over a quarter (26.5 percent) stated that they were planning to either shift all (1.8 percent) or some sourcing/ manufacturing to another country (24.7 percent). However, 34.7 percent of respondents stated that they had no intention of shifting sourcing out of China.
  • For those who indicated that they were planning to shift sourcing out of China, 11.8 percent stated that they were in the preliminary stages while another 8.8 percent were either discussing or planning to shift supply chains out of China. Over two-thirds of respondents (66.5 percent) indicated the question as not applicable to their situation — which may suggest that many companies are not seriously acting upon or planning to facilitate major manufacturing shifts at this time.
  • In terms of the reasons behind why organizations were planning to shift supply chains elsewhere, 31.3 percent cited the need for greater supply chain diversification while 17.9 percent pointed to the need to reduce reliance on China for sourcing essential materials. In addition, 15.9 percent of respondents also pointed to tariffs and other trade-war related disruptions as another factor for shifting sourcing/manufacturing elsewhere.
  • Over half of the respondents (51.3 percent) stated that they believed that their company would be facing declining revenues in light of COVID-19, with 22.1 percent expecting a decrease of 5-10 percent and 17.9 percent anticipating a decrease of 10 percent or greater. This comes in contrast to only 12.2 percent of respondents that believed that their annual revenues would increase by 5 percent or more (8.7 percent) or 1-5 percent (3.6 percent).
  • As for near-term measures organizations were planning to take over the next 6-12 months, 56.9 percent claimed that they would apply more active supply chain risk management processes; 51.3 percent stated their organization would explore alternative logistics and delivery routes; and 40.5 percent stated that they would invest in technologies


Since Chinese authorities shut down the city of Wuhan to contain the emerging novel coronavirus 12 months ago, the COVID-19 pandemic has upended global supply chains, shutting factories, delaying transportation, and disrupting access to labor and component parts around the world. Companies in the consumer goods, retail, and electronics industries were faced with demand spikes for certain items as more people worked from home, while aerospace and automotive supply chains came to a complete halt amid a collapse in air travel and the shutdown of global car factories.

According to the World Bank, the world economy shrank by 4.3 percent in 2020, while The Economist estimates that COVID-19 will have resulted in USD 10.3 trillion (EUR 8.5 trillion) in forgone output, i.e. goods and services the world could have produced had there been no pandemic-related disruptions. This setback has only been matched by the Great Depression and the two world wars, illustrating the unique and unprecedented disruption caused by COVID-19.

As organizations continue to face a challenging business environment amid ongoing uncertainty on when the pandemic may be fully contained, Everstream Analytics conducted a customer survey among supply chain professionals in procurement, finance, logistics, and risk management functions on how COVID-19 has impacted their organizations. The survey takes a particularly close look at how leading organizations have adapted their supply chains to mitigate disruptions — from the use of emergency air cargo to stockpiling and using alternative modes of transportation — as well as which strategic sourcing trends have started to emerge to minimize future disruption risks amid discussions on diversification, regionalization, and near-shoring.

Within this context, this Everstream Analytics’ study aims to establish the views of supply chain professionals who are at the forefront of navigating the operational risks posed by the COVID-19 pandemic. By compiling quantitative data, the report examines more closely how respondents from different sectors, including technology, life sciences & health care (LSHC), automotive, logistics & transportation, engineering & manufacturing (E&M), consumer, chemicals, energy, retail and aerospace, are viewing the pandemic, evaluating their supply chains networks, and rethinking logistics and procurement strategies.

One year into the pandemic, the data and the insights on trends and strategies derived from this report should enable companies to make more informed decisions when tackling the ongoing, unprecedented supply chain challenges around the globe.

Operational Impacts

The larger the company, the greater the impact

Throughout 2020, companies with global supply chain operations have been facing the unique challenge of having to adopt various measures on different continents according to the regional COVID-19 situation to reduce their risk exposure and mitigate the impact on business operations. Given this backdrop, Everstream Analytics asked respondents to assess the extent to which the pandemic has been impacting logistics, production, and supply chain operations.

Figure 1: To what extent has your organization been impacted by the COVID-19 crisis?

Highlighting the profoundly disruptive impact COVID-19 has so far had on global supply chains, more than 98 percent of respondents stated that the pandemic has affected them to some degree. Almost two-thirds of the respondents (74.9 percent) stated that their organizations were either affected or highly affected by COVID-19. This comes as no surprise as the supply chain challenges caused by the pandemic are unprecedented and fundamentally different to past disruptions over the last two decades. In comparison to the Fukushima disaster in 2011 or Hurricane Harvey in 2017 — both events that led global organizations to either begin or accelerate supply chain risk management efforts — the COVID-19 pandemic has been unique due to its all-pervasive nature, with disruptions not being confined to a particular location or a type of component.

Companies across various industries have been struggling not only on the supply side of the supply chain, but also on the demand side, both of which have experienced sharp fluctuations in 2020. Out of the organizations that were either highly affected or affected, over half of all respondents identified themselves as belonging to the automotive (19 percent), technology (17 percent), and LSHC (16 percent) sectors. Notably, a breakdown by size of the organization in terms of annual revenue revealed that whereas almost half of the companies that indicated having been either highly affected or affected by the pandemic were multinational organizations with revenues of USD 10 billion (EUR 8.25 billion) or larger (46.5 percent), those having been only somewhat affected or not affected at all were predominantly smaller organizations with revenues between USD 50 million (EUR 41.2 million) and up to USD 10 billion (EUR 8.25 billion) (59.2 percent). One explanation for this could be that larger corporations tend to have more complex global supply chains, with operations on several continents and multiple decision-making layers. Smaller companies with a strong regional focus or flatter hierarchies may have been able to react more quickly and decisively to mitigate at least some disruptive impact induced by COVID-19.

Demand shocks and supply shortages amid biggest challenges

The observation that both demand and supply have experienced disruption since the start of the pandemic was confirmed by the responses to a follow-up question. Asked to select the most significant short-term challenges in the next 3-6 months, all respondents expressed that, first and foremost, demand shocks and surges would remain the most significant challenge. This was followed by nearly all participants stating that supply shortages for critical materials and components (97 percent) as well as cargo capacity shortages (90 percent) would very likely also remain a considerable risk in the coming months.

The abovementioned challenges faced by supply chain professionals has once more been highlighted in recent months amid a second wave of lockdown restrictions. First, with retail stores closed in some parts of Europe, consumer demand again shifted to online stores, boosting e-commerce shipments of technology, furniture, and fashion products and causing another demand spike for fast moving consumer goods, a familiar pattern already experienced during the first phase of lockdowns in spring 2020. Unlike consumer goods, other industries depending on heavy manufacturing and machineries, were faced with a significant drop in demand for their products. Examples include steel or intermediate goods used in everything from aircraft to automobiles and machinery equipment — all industries which shut down production for several weeks in 2020, causing financial pressures on their supplier networks.

Second, in the Americas, supply shortages were reported once more at a General Motors’ facility in Kentucky, U.S. in October 2020 due to reduced output caused by COVID-19 at a Mexican supplier. It is likely that this was either due to production restrictions in the affected Mexican state or COVID-19 induced labor shortages in the workforce. A similar issue was reported in Germany, where Volkswagen had to trim production at multiple plants in December 2020 due to parts shortages caused by a shutdown of a key component supplier following a COVID-19 outbreak among its workforce.

Figure 2: What will be the most significant short-term supply chain challenges over the next 3-6 months for your organization?

And third, on the logistics side, the unprecedented scale of passenger flight cancellations by airlines and implemented blank sailings by ocean carriers has led to profound disruptions in the global logistics markets since the start of the COVID-19 pandemic. As economies started to recover throughout the summer, air and ocean freight capacity levels gradually recovered, but were significantly outpaced by a spike in demand fueled by consumer goods and intermediate products that continues to cause high spot rates on major trade lanes, in particular out of Asia. The strong demand levels are unlikely to decrease in the coming weeks and are even expected to continue past Chinese New Year in February 2021 until at least the end of March 2021.

Among other dominant challenges highlighted by the respondents were financial and cash flow pressures, production delays and stoppages, and supplier disruptions. The prominence of mentioning cash flow pressures (81 percent) as one of the most significant challenges can be explained by the fact that several sectors from retail to aerospace and automotive have been hit particularly hard in the initial phase of the outbreak due to government-mandated lockdowns and shutdowns. A business survey conducted in China in the early stages of the pandemic revealed that 85 percent out of small and medium enterprises expected to run out of cash within 3 months, underlining why many governments set up financial support programs to mitigate pandemic-induced impacts on liquidity.

As businesses have faced the continuous risk of intermittently having to shut down their operations in 2020, likely due to government orders, COVID-19 outbreaks among the workforce, or parts shortages, production delays, and stoppages (73 percent) have been a key supply chain challenge that extended even to those sectors deemed most essential such as food production. With the risk of regional or national infection waves still remaining high, companies expect that at least in the near future, a start-stop production environment may become the new normal to adjust to. One key reason for many production-related challenges has been disruption at a supplier level (71 percent) that companies were unable to mitigate on short notice, likely due to either a single-source set-up where no alternative supplier was available or because many companies rushed to secure supplies from an alternative supplier that struggled to meet the spike in additional orders.

Surprisingly, only 31 percent of all respondents for this question stated that the lack of visibility for suppliers below the Tier-1 level was expected to be a significant short-term challenge within the next 6 months. One explanation for this is that this challenge is considered more strategic in nature that needs to be proactively tackled by investing into supply chain visibility technologies, a journey that many companies have not yet committed to and that COVID-19 may serve as a wake-up call for. Another reason could be that large organizations in some sectors such as automotive have traditionally held Tier-1 suppliers responsible for managing disruptions on sub-tier levels, effectively outsourcing some of supplier-related risks

Logistics Challenges

As the effects of COVID-19 started to ripple through first Asian and then global supply chains from February 2020, organizations relying on exporting from and importing to some of the earliest affected countries, such as China, Japan, South Korea, or Italy, rapidly faced considerable obstacles in their logistics operations. These included a lack of space or higher spot rates that resulted in delayed cargo, elevated logistics costs and, in the worst case, disrupted production lines andcaused lost sales. Over the following months, the challenges only increased due to government-mandated measures to contain COVID-19 that delayed border movements, disrupted labor supply at ports, and caused passenger flight cancellations at unprecedented levels.

Logistics capacity crunch

While logistics operations have somewhat stabilized as of January 2021, numerous challenges remain in the logistics market. Air freight rates on the China-Europe and China-North America routes — two of the most important trade lanes for air cargo — remained, respectively, around 78 percent and 157 percent higher than in January 2020, while ocean cargo spot rates from China to Europe and China to the U.S. west coast were still up by 264 percent and 176 percent higher than 12 months ago. Particularly the record-high spot rate levels on the China-Europe ocean trade have not been seen since 2010.

When asked about the greatest logistics-related challenges companies have been facing during the COVID-19 pandemic, the responses highlighted that — with multiple answers possible — almost two-third of all participants (63.1 percent) have mainly struggled with air freight capacity shortages and flight disruptions. This underlines the exceptional impact of COVID-19 on air cargo supply chains, in particular in the early months of the crisis. Globally scheduled air cargo capacity dropped to unprecedented lows in the first half of the year as travel bans led to massive flight cancellations, with April 2020 recording a 41.6 percent decrease year-over-year. This was even toppled by figures in July 2020 when air cargo capacity shrank by 70.5 percent compared to the previous year. As of December 2020, global air cargo capacity still remained about 21 percent below the 2019 level for the same period.

Besides air freight shortages, almost half of all respondents (48.7 percent) stated that the biggest challenge their company faced were ground transportation restrictions and trucking shortages, likely caused by cross-border movement restrictions that also affected truck drivers in the early stages of the pandemic. For instance, stricter border checks within the European Union led to significant delays for cross-border trucking in many countries in March 2020, while truck drivers were at times forced to quarantine, reducing haulage capacity all over the continent. Similarly, inter-provincial border checks in China during the height of the outbreak there from January to March led to a significant reduction in domestic trucking capacity as drivers were stuck in their home provinces. In addition, border controls on the China-Vietnam and China-Russia border have led to long queues of trucks, even as recently as December 2020, when new cases were detected in the border city of Suifenhe.

This was followed by 42.6 percent of the respondents mentioning that ocean freight disruptions and associated capacity shortages were their organizations’ greatest challenge. Following an initial period of an unprecedented number of blank sailings, through which ocean carriers took out more capacity on all routes combined than during the financial crisis in 2009 due to lower demand, there has been a sharp rebound effect of strong demand since the beginning of the third quarter. This has caught the logistics industry by surprise and led to severe capacity shortages that have contributed to high spot rates for container shipping in recent months. Besides strong demand, other major underlying factors include a severe imbalance in container supply; high volumes overwhelming port operations strained by COVID-19 related labor shortages; and carriers potentially prioritizing more lucrative trade routes in equipment and vessel supply, such as the transpacific trade route, amid the ongoing pandemic uncertainty.

Figure 3: What have been the greatest logistics-related challenges facing your organization during the COVID-19 crisis?

It is interesting to note that most respondents that selected air freight and trucking disruptions came from the technology, automotive, LSHC, as well as E&M sectors. These industries rely on nimbler, more agile supply chains, either because of their just-in-time production schedules or due to the high value of the transported goods. The relatively low number of responses from participants in the technology sector being concerned with ocean freight disruptions (8.9 percent) came as little surprise and is explained by two factors. First, for semiconductors and consumer electronics, the majority of shipments are still transported through air or land depending on the origin and destination country, with ocean freight less frequent given the challenges associated with humidity and other temperature-sensitive impacts. Second, some companies in the technology sector were among the first to shift higher cargo volumes to alternative services that could bypass some of the worst disruption such as delays and port congestions. On the Asia-North America route, technology companies used premium vessel services that offer faster port-to-port connections on smaller vessels, while on the Asia-Europe route, they are among the most frequent users of the growing number of rail connections via Kazakhstan and Russia.

Paying premium rates to keep supply chains running

In a subsequent question on how companies responded to these logistics-related challenges in their supply chain, by far the most dominant answer was that companies paid premium rates (37.4 percent) in order to have critical air cargo shipments uplifted from origin points, as air cargo capacity rapidly decreased from March 2020 due to international travel restrictions. Amid the turmoil in the logistics market, organizations were eager to keep supply chains running by any possible means and, evidently, at great costs to avoid expensive shutdowns or undelivered customer orders amid the uncertainty of how the pandemic would unfold. In one instance, a China-based supplier of automotive components used in exterior trims of cars manufactured by Mazda had to shift production to Mexico and then airlift the products to its customer’s assembly line in Japan, a move that cost in total more than USD 5 million (EUR 4.1 million).

This was followed by close to one-fourth of respondents (22.6 percent) stating that their company increased stock levels prior to or in the early stages of the COVID-19 pandemic to increase its resilience. It is likely that companies with a robust supply chain risk management system in place were able to react faster to the unfolding pandemic in the early months of 2020, giving them a time advantage to either secure more critical supplies or ensure logistics capacity amid rapidly decreasing options. In one instance, a global Tier-1 automotive component supplier that uses Everstream Analytics to monitor supply chain disruptions in near real-time decided to act fast after receiving the initial alert on the looming shutdown in the city of Wuhan, China in late January 2020. The company assessed the impacted suppliers, evaluated inventories in the network and placed a one-time buy order covering the maximum feasible quantity, using rail freight connections into Europe to ship them out of Wuhan in the hours before the lockdown. This allowed the company to continue a major engine program uninterrupted, saving a high double-digit million figure.

Figure 4: How has your organization responded to logistics-related challenges in the supply chain?

Interestingly, only a low share of respondents said they used a combination of or an alternative mode of transportation to keep supply chains flowing, including using multimodal services (15.4 percent) or ocean services instead of air (7.7 percent), illustrating that in an uncertain environment that makes scenario planning difficult, most companies opted for more expensive yet reliable options, such as air cargo, and increased buffer stock.

Use of alternative modes of transportation & multimodal solutions

A breakdown of respondents by sector revealed that organizations in the technology (26 percent), LSHC (19.1 percent), and automotive sectors (19.1 percent) were among the largest users of premium air cargo services. Besides the just-in-time considerations for the automotive industry, technology companies may have been willing to pay higher logistics rates to benefit from a spike in demand for consumer electronics including laptops and other devices useful for home office environments; organizations in the LSHC sector were likely concerned with making sure that high-value, temperature-controlled products would not be held up in congested bottlenecks in order to ensure product integrity.

While LSHC and automotive companies (both 22.7 percent each) made up the largest share of respondents with regards to the increase in stock levels, it is interesting to note that organizations in the technology (21.4 percent), E&M (11.9 percent), and consumer goods industries (11.9 percent) accounted for most responses regarding the use of multimodal services or ocean services instead of air cargo. While technology companies were quick to increasingly use premium ocean services as an alternative, E&M companies typically ship larger volumes of more bulky components or machinery that are usually more suitable for transportation via ship. In addition, such services were likely increasingly attractive to consumer goods companies as high air cargo costs threatened to shrink profit margins for generally high volume, low-value consumer goods.

A follow-up question on the origin-destination pairs — with multiple answers again possible — for which companies adapted their logistics operations revealed that more than 40 percent of respondents paid premiums on air cargo or switched to multimodal or ocean services for destinations between Europe and North America, followed by China to Europe (37.2 percent), and China to North America (30.8 percent). These connections are considered to be the major trade lanes, carrying a majority of the world’s air cargo.

Figure 5: For which origin-destination Paris has your organization used such alternative modes of transportation?

Similar to the aforementioned record spot rate levels on the China to Europe and China to North America routes, logistics managers continue to face significantly higher air cargo rates between destinations in Europe and North America. As recently as November 2020, spot rates were up by 124 to 219 percentcompared to the same time the previous year on the transatlantic lane. The continuous high premiums companies have to pay to move air cargo have certainly contributed to the launch of the first expedited ocean service by APL Logistics between Bremerhaven, Germany and Norfolk, U.S., shortening transit times and guaranteeing equipment in an effort to replicate the success these products have enjoyed on the transpacific lane in 2020.

Multimodal alternatives between China and Europe that have gained traction in 2020 amid high air cargo rates include faster rail services that have cut transit times from previously 17 days to 10-12 days between central China and eastern Europe. The number of trains departing China for Europe, in fact, surpassed 10,000 for the whole of 2020, an almost 20 percent increase from 2019.

On the transpacific trade lane, the success of expedited ocean services has prompted more carriers to offer such products, with multiple new service launches having been announced in the last quarter of 2020. Amid growing congestion at the Port of Los Angeles/Long Beach, ocean carrier CMA CGM announced in the first week of January that it would offer an expedited service with a direct port-to-port connection between the southern Chinese port of Yantian and the Port of Oakland in northern California to increase reliability. Some of these services have also been connected to express trucking services to inland U.S. destinations, offering a faster alternative to the dominant but slower intermodal setup that includes rail services.

Amid the secondary trade lanes that received the greatest attention in supply chain modification efforts was the China to intra-Asia route with 16.4 percent of responses. This can be explained by the significant disruption caused by capacity crunches in both air and ocean freight as well as border closures that affected trucking services. For instance, as early as February 2020, when the pandemic led to the closure of the China-Vietnam border, electronics maker Samsung began flying electronic components from China to its smartphone factories in Vietnam to keep production running due to restrictions on cross-border trucking, the usual mode of transportation in their network.

Figure 6: What was the main reson for your organization’s choice of alternative modes of transportation?

Reliability, not costs, behind push to alternative modes

When asked about the main reason for the choice of alternative modes of transportation, more than half of the respondents underlined the need for reliable service (33.2 percent) and less congestion (20.9 percent) in their supply chains. These choices underline the significant bottlenecks that COVID-19 has caused throughout the year, prompting companies to scramble for alternatives that could provide greater reliability amid the turmoil in the logistics market. Only in third place with 12.8 percent of responses did companies mention that alternative modes of transportation also provided the opportunity to lower the costs for logistics operations.

Figure 7: Which alternative transportation modes would your organization continue to use even after COVID-19 challenges have subsided?

Many organizations have been primarily focused on keeping supply chains running at all costs, prioritizing service reliability over costs — for instance by paying premiums. Of all respondents, 19 percent said that the question was not applicable to them, which indicates that either the question was not relevant to their function (i.e. procurement), or that their company continued to rely on their traditional transportation means amid the pandemic.

From air to ocean: are supply chains set to become longer?

Taking into account the final question in this section on logistics challenges which asked participants to name the alternative transportation they would continue to use even after the pandemic, by far the most dominant answer — excluding the non-applicable choice — was the use of ocean cargo services instead of air cargo.

This is interesting as it indicates that while most companies were primarily interested in using air cargo to keep supply chains running at all costs in 2020 as indicated by the survey responses, a large share also plans to shift away more transportation to ocean cargo services in the future, likely because of three factors. First, companies expect persistent uncertainty around air cargo capacity in 2021 amid global vaccine distribution and further travel restrictions. Second, ocean carriers increasingly offer competitive time-definite products on major trade routes, such as expedited ocean services with guaranteed equipment, by-passed congestion, and faster transit times. And third, significantly lower transportation costs for ocean cargo compared to air cargo — despite the record-high spot rates — are likely to again play an important role for logistics budgets in a post-pandemic environment.

Most companies that chose to consider using more ocean cargo services instead of air came from the LSHC sector (23.4 percent), underlining a trend of healthcare companies exploring container shipping transport by ocean. Despite the temperature-sensitive nature of many products, pharmaceutical firms already ship goods such as insulin in full container reefers via ocean, and are exploring whether this is feasible for some of the COVID-19 vaccines as well. Other industries looking to shift more cargo from air to ocean are technology, automotive, and E&M (all 17 percent).

Manufacturing Shifts

A key underlying theme that has emerged from the COVID-19 crisis is the extent to which companies are contemplating the need to diversify their supply chain locations in order to reduce reliance on a single country’s manufacturing facilities — most notably Chinese suppliers for critical parts and components across major industries. At the height of the crisis, the COVID-19 pandemic exposed the severe vulnerabilities that global manufacturers faced as companies scrambled to identify affected suppliers and keep their supply chains moving. Although natural disasters and global trade conflicts have served as an impetus in the past, multinational firms are re-assessing their supply chain networks on whether shifting sourcing and/or manufacturing to other alternative markets could be necessary.

The ongoing debate on whether the COVID-19 crisis will further accelerate a broader trend of global supply chain diversification remains a contested one. Proponents of shifting sourcing and/or manufacturing cite risk mitigation factors, ranging from lower labor costs to sourcing diversification, as the main reasons behind why shifting production away from China may be needed if similar large-scale disruptions were to surface again in the future. However, it remains to be seen if multinational firms — should they commit to such a process — are successful in reducing supply chain reliance on China given the highly integrated nature of global manufacturing and supplier networks across critical industries.

Figure 8: Which country does your organization have a significant sourcing and/or manufacturing presence in?

Diverse manufacturing presences among respondents

When asked which countries their organization had a significant sourcing and/or manufacturing presence in, it came as little surprise that China emerged as the top choice for the majority of respondents at 57.1 percent. This is largely reflective of the pivotal role China plays within global supply chains as it continues to comprise of a relatively low-cost workforce along with mature manufacturing facilities that has helpedmultinational firms both cut production costs and enable sourcing for critical products and components across multiple industries. Out of the respondents that chose China, 21.6 percent came from the technology sector followed by automotive (19.6 percent), E&M (16.5 percent), and LSHC (15.5 percent).

The E.U. (52.9 percent) and the U.S. (51.2 percent) were the econd and third leading choices for respondents, which may be reflective of a number of companies that hold a strong sourcing and/or manufacturing presence at, or nearby, the corporate headquarters where their organization is based. Other notable countries that were highlighted by respondents included Mexico (27.6 percent), India (25.9 percent), and Brazil (18.8 percent) — all of which are emerging markets that have seen growing global manufacturing presences over recent years. In addition, respondents highlighted several countries concentrated in the Asia-Pacific region that have traditionally been known for having strong manufacturing bases across a number of critical industries including Japan (15.9 percent), Vietnam (13.5 percent), Taiwan (11.8 percent), and South Korea (10.6 percent).

Figure 9: Is your organization planning to move sourcing and/or manufacturing out of Chain due to the COVID-19 crisis?

Mixed views on shifting supply chains out of China

In terms of whether respondents were planning to move sourcing and/or manufacturing out of China in light of the COVID-19 crisis, the question drew contrasting results. While over a quarter (26.5 percent) indicated that they were planning to either shift all (1.8 percent) or some sourcing and/or manufacturing to another country (24.7 percent), over one-third of respondents (34.7 percent) stated that they either had no intention of shifting sourcing out of China (25.3 percent), planned on increasing sourcing and/or manufacturing activities in China (6.5 percent), or are shifting to different or additional provinces within China (2.9 percent). Quite notably, 37.7 percent of respondents pointed out that the question was not applicable to their existing situation — although several respondents commented that they were looking into potential dual sourcing strategies.

Figure 10: If yes, what stage of planning for a sourcing and/or manufacturing shift out of China is your organization in?

A mass exodus of global supply chains uprooting out of China remains unlikely for several reasons. Although shiftingproduction away from China may seem enticing, companies will need to evaluate various factors from a supply chain and operational standpoint: lack of sufficient access to mature manufacturing facilities; warehousing availability; reliability of air, ocean, and ground infrastructure and transportation routes; and alternative suppliers and raw materials. In industries that are heavily reliant on advanced technologies, shifting sourcing and/or manufacturing out of China may not be advantageous given that much of the technology that is being built or made in China requires specific skills from an educated workforce that are not necessarily easily transferable elsewhere.

Hesitancy to commit to moving supply chains out of China

Out of the respondents who indicated that they were planning to move sourcing and/or manufacturing out of China, 11.8 percent suggested that they were in the preliminary stages of assessing the feasibility of moving supply chain operations, while another 8.8 percent were discussing or planning to shift supply chains out of China. For those at a more active stage of planning, 9.4 percent indicated that their organization had already shiftedsome sourcing and/or manufacturing out of China but only 0.6 percent stated that they have completely relocated sourcing and/or manufacturing at this stage. Over two-thirds of respondents (66.5 percent) stated that the question was not applicable to their current situation, which may suggest that the majority of companies — regardless of whether they have a strong supply chain presence in China — are still not seriously acting upon or even entertaining the thought of facilitating major manufacturing shifts. This was consistent across all functional roles represented by the respondents.

The relative hesitancy to commit to shifting supply chains out of China can be attributed to several factors. In the immediate term, the ability to carry out sourcing and/or manufacturing shifts may be difficult as many countries worldwide continue to struggle with the impact of consecutive COVID-19 infection waves at least for the foreseeable future. This comes as China’s factories and export-led industries have largely continued to fill the global void after having, for the most part, contained the COVID-19 pandemic as its domestic manufacturing sector marked their 10th consecutive month of expansion as of December 2020. Over the longer term, the ability to plan out or execute large-scale manufacturing shifts will depend on how feasible facilitating such flows will be and determining whether a more regionalized network for sourcing beyond a single country or supplier is ultimately needed.

Greater supply chain diversification, reducing reliance on China cited as leading factors

For respondents that were looking to move production elsewhere, the main factors behind why their organization sought to carry out supply chain shifts varied. Nearly one-third (31.3 percent) cited the need for greater supply chain diversification in order to reduce concentration risk, while 17.9 percent pointed to reducing reliance on China for sourcing essential materials. In particular, the COVID-19 crisis exposed how many countries lacked self-sufficiency for essential medical products needed to combat the pandemic (such as personal protective equipment, surgical masks, and ventilators), as well as lower-to-mid end parts, components, and raw materials that are essential in keeping production moving across key industrial supply chains ranging from automotive to energy. For example, China accounts for around 20 percent of the global supply of Active Pharmaceutical Ingredients (APIs), while the U.S. Department of Health estimates that 95 percent of surgical masks and 70 percent of respirators (such as N95 masks) were made overseas.

Tariffs and other trade-war related disruptions (15.9 percent) were cited as another factor for shifting sourcing and/or manufacturing elsewhere. Such restrictions are expected to persist at least in the short-term as the incoming Biden administration is reportedly unlikely to make immediate moves to lift trade war tariffs before conducting a full review of the Phase One trade deal that the U.S. reached with China in January 2020.

Figure 11: What are the main factors behind why your organization is seeking to shift sourcing and/or manufacturing elsewhere?

In light of the COVID-19 crisis, the factors that were least cited tended to be domestic-related challenges in China, such as market access and regulatory restrictions (5.1 percent) and greater domestic competition (3.1 percent). In contrast, a Everstream Analytics report on the U.S.-China trade war published in December 2019 found that out of the respondents that were looking to shift production or relocated manufacturing operations out of China, 21.1 percent cited market access and regulatory restrictions and 8.2 percent pointed to increasing domestic competition as being main motivating factors.

Preference for shorter supply chains and alternative markets in Asia

For those that have either shifted some sourcing and/or manufacturing activities, or are planning to do so, the results largely reflected a strong preference for potential re-shoring or near-shoring options, as well as alternative third-country markets concentrated mostly across the Asia-Pacific. The E.U. (15.4 percent), U.S. (12.3 percent), and Mexico (10.3 percent) emerged as leading notable choices for re-shoring and nearshoring options, while a large contingent of respondents also picked out a number of alternative markets mostly concentrated across the Asia-Pacific such as India (12.8 percent), Vietnam (11.3 percent), Malaysia (9.7 percent), Singapore (7.2 percent), Thailand (6.7 percent), South Korea (5.1 percent), and Indonesia (4.6 percent). More than half of the respondents (51.3 percent) stated that the question was not applicable to their organization, while another 7.7 percent indicated that they were not looking to move production.

Taking into consideration the impact of the COVID-19 crisis, the preference for shorter and more localized supply chains isunderstandable. Those supportive of bringing off-shored manufacturing back to or closer to their native countries through re-shoring and/or near-shoring have long-argued that repatriating more domestic operations would ensure stronger quality controls that have been overlooked in the past in order to capitalize on lower labor costs. In the case of near-shoring, while some distance may always persist between manufacturers and suppliers (e.g., Mexico-U.S.), the idea is to ring manufacturing closer to its point of end-use. As global supply chains continue to face turbulence, the appeal of shorter supply chains is also likely to gain further traction particularly among companies that will be keen to mitigate single-region dependency and avoid another situation whereby they are overly reliant on importing critical supplies from abroad.

Figure 12: If your organization has already shifted some sourcing and/or manufacturing, or planning to do so, which alternative market(s) are you considering?

The desire to shift supply chains away from China to alternative markets was also reflected with respondents choosing India and Vietnam as potential leading destinations. While the full extent of such shifts can be difficult to measure — owing largely to multinational organizations keeping such decisions discrete — the survey results demonstrate a growing preference among global companies for alternative emerging markets as part of an ongoing trend that was already materializing in light of trade-war related disruptions and opportunities to capitalize on lower labor and production costs, as well as increasing industrial growth. Out of the respondents that chose India, 24 percent came from the technology sector followed by energy (16.0 percent), and LSHC (12 percent). For Vietnam, 22.7 percent came from the technology, and 13.6 percent for both consumer and LSHC respectively.

But whether such markets will be able to realistically replicate — or even replace — China’s role within global supply chains remains to be seen. In India, inward-looking economic policies and a growing emphasis on self-reliance within its domestic market threaten to derail its opportunity to take up more global export market share despite recent efforts on the part of the Modi government to entice manufacturers to invest in the country. For Vietnam, skeptics argue that critical logistics and transport infrastructure is still lacking compared to China, with warehousing availability in industrial parks and regional airports operating at well over-capacity. In addition, many of the components needed for high-value technology products, such as microchips and smartphones, are still sourced from China, South Korea, Taiwan, or elsewhere where it is later imported and assembled in Vietnam.

Looking Ahead

As the world transitions into a post-pandemic recovery period, global manufacturers and supply chain professionals will likely need to continue to prepare for further volatility as countries attempt to stem the spread of the pandemic. Through this study, Everstream Analytics sought to gain a clearer picture into how respondents are intending to cope with the COVID-19 crisis as the pervasive supply chain impact of the pandemic looks set to linger for years to come.

Figure 13: What impact do you expect the COVID-19 crisis to have on your organization’s annual revenue (compared to the previous financial year)?

Declining revenues expected among multinationals and smaller-sized firms

In terms of the expected financial impact of the COVID-19 crisis, over half of the respondents at 51.3 percent cited that they believed that their company would be facing declining revenues compared to the previous year, with 22.1 percent expecting a decrease of 5-10 percent and 17.9 percent anticipating a decrease of 10 percent or greater. Of the respondents that reported expecting declining revenues, over one-fourth (26.4 percent) came from the automotive sector followed by E&M (14.9 percent), logistics and transportation (13.8 percent), and LSHC (11.5 percent). The impact also appears to be evenly spread across both large multinational companies and smaller-sized firms, with organizations holding n annual revenue above USD 50 billion (EUR 41.1 billion) (19 percent) and those making up to USD 50 million (EUR 41.1 million) (21 percent) similarly reporting expected declining revenues due to COVID-19.

Conversely, a sizable minority interestingly believe that their company suffered no significant financial impact or would record increases to their annual revenue compared to 2019 despite the onset of the COVID-19 crisis. In particular, 12.2 percent of respondents believed that their company would have annual revenues that would increase by 5 percent or more (8.7 percent) or 1-5 percent (3.6 percent) while another 8.2 percent declared their organization experienced no major financial impacts from the COVID-19 crisis. Just over a quarter of respondents (25.1 percent) elected not to respond to the question.

Proactive risk management measures on the rise

As for near-term measures organizations were taking over the next 6-12 months, an overwhelming majority of respondents stated that they would be considering at least some form of proactive action in response to the COVID-19 crisis.

Over one-half of respondents (56.9 percent) claimed that they would implement more proactive supply chain risk management processes followed by 51.3 percent who stated their organization would explore alternative logistics anddelivery routes. Of all respondents, 40.5 percent indicated that they would invest in technologies aimed at helping to improve monitoring of supply chain risks, while another 35.4 percent stated that they would consider improving measures for anticipating and mitigating further supplier insolvency risks. Around 21.5 percent stated that they would also be evaluating reshoring and near-shoring alternatives. In a potentially encouraging sign, only a small portion of respondents (10.8 percent) reported that they were not planning to implementany near-term supply chain risk management measures despite the unpredictability posed by the COVID-19 crisis, illustrating how proactive risk mitigation has grown in importance among the greater majority. Other respondents commented that they were considering widening the range of their customer base and increasing the number of suppliers to have greater transparency on prices.

Figure 14: What risk management measures will your organization implement in the next 6-12 months in response to the current COVID-19 crisis?

Concluding Remarks

This Everstream Analytics study is intended to provide supply chain professionals with a comprehensive look into how their peers are responding to the ongoing business and operational challenges as companies seek to navigate the global turbulence posed by the COVID-19 pandemic. The highly disruptive stopstart nature of COVID-19 related restrictions is almost certainty likely to persist as governments and companies worldwide prepare for the distribution of COVID-19 vaccines that can help alleviate some of the pains.

The underlying uncertainty posed by the COVID-19 crisis serves as an ominous reminder of the persistent supply chain challenges that will likely remain for years to come in what is becoming ‘the new normal.’ As global supply chains become increasingly fractured, global companies and suppliers will need to develop agile and responsive supply chain measures to guard against one of the greatest worldwide disruptions experienced in a generation.

Respondent Profile

Figure 15: Which industry best describes your company?
Figure 16: Which function do you work in?
Figure 17: What is the annual revenue of your organization?

Share this post

Record Level Shipping Costs Intensify Supply Chain Stakes [Report]

Transportation costs to ship containers from Asia to North America and Europe have been rising at a historic pace as the supply chain industry experiences persistent congestion at major gateways. Download the recent Everstream report to find out how a long-term rising shipping cost crisis will likely hit cargo shippers ranging from food and beverage companies to retailers and automakers.