The emergence of the Covid brought with it various effects in the economic field. One of them is related to the operation of supply chains. For seven decades, industrial production has been organized around the idea of just in time, that is, the timely supply of raw materials and components for manufacturing, which allows inventories to be reduced and requires a high degree of coordination between the links. of the value chain.
Economic globalization is the result of this process. The last 40 years witnessed innumerable international trade negotiations, which gave rise to a production organization scheme, which made it possible to distribute the elaboration of the various components of all types of products among various countries and regions. For the efficient operation of this scheme, opportune, sufficient and economic communication and transportation systems were required.
The pandemic broke this scheme. The closure of factories in various countries, sudden changes in the demand for certain products and the suspension of logistics operations in some countries, produced coordination problems in supply and transportation. In particular, containerized maritime transport has been one of the most affected and is the one that best exemplifies the magnitude of the problem.
Until before the pandemic, the average cost of moving a container from China to the west coast of the US was around $2,500. Towards the end of 2021 and, since the war between Russia and Ukraine, the cost of it rose to more than 15,000 dollars. If, as indicated by The Economist, the average cost of goods transported in containers on that route is 50,000 dollars, this means that the cost of transport in the maritime section rose from representing 5 percent of the value of merchandise, to 30 percent. hundred. Obviously, an increase of such magnitude ends up having an impact on the final price of the goods.
In addition to the increase in transportation costs, companies face increased costs, because the lack of supply of inputs and components forces them to create additional inventories, under penalty of running out of supplies to continue their operations.
The outlook is not flattering. Unlike other maritime transport crises, in which companies reacted by expanding their capacity (which subsequently led to price wars), the consolidation of the industry around 7 major shipping lines and 3 alliances between them implies that there will be a further rationalization of installed capacity. For the next few years, the shipping fleet is expected to expand at a lower growth rate than that shown years ago. Contributing to this is the uncertainty regarding environmental standards for ships, which has caused a more cautious attitude on the part of transport companies.
Given the reality of more expensive maritime transport and the loss of confidence in the supply from certain countries, in developed economies there is talk of a relocation of production. Countries like Mexico, close to major industrial powers, have before them the immense opportunity to attract investments, which seek greater security in the supply of parent companies and clients, located in our case in the US, and reduce costs and transportation times.
Unfortunately, our country loses competitiveness and is less attractive every day. Delays in the development of infrastructure, uncertainty in the generation and cost of electricity and the manifest weakness of our rule of law are not the best signs to attract investors. We are probably facing the last call to get on the development train. . We need to leave the division behind and move away from political opportunism, to focus on building an economic model of progress and inclusion.
*Managing Partner of Ockham Economic Consulting, specialized in economic competition and regulation and university professor.
@javiernunezmel
Consultant
Competition and Markets
Consultant in Economic Competition and Regulation, he is also a university professor.