The pandemic exposed fragile supply chains: Here are 3 ways to strengthen them and build on global trade

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Yin Zou, Executive Vice President of Corporate Development, DHL Group

For more than 30 years, globalization has been the evergreen megatrend. And rightly so: Global trade has helped lift some 1 billion people out of poverty.

The COVID-19 pandemic disrupted the international flow of goods, bringing the critical role of resilient supply chains in sustaining economies worldwide to the forefront. Supply chains became a decisive topic in the public consciousness overnight, but they lost visibility once the threat waned.

However, new patterns are emerging in the dynamic landscape of global trade, and new challenges are arising. Wars, armed conflicts, overall increasing geopolitical tensions, and protectionism create serious headwinds for global trade. These developments bring supply-chain resilience and risk management back to the table. They also prove that an environment that allows global trade to flourish is not a given.

Given the benefits of global trade for humanity, shaping a more resilient and sustainable global trade is a highly relevant topic for Davos 2024, the Annual Meeting of the World Economic Forum.

The world has witnessed severe disruptions, most notably the pandemic that unfolded in recent years. COVID-19 has not only tested the resilience of supply chains but has also exposed vulnerabilities. Over decades, some sectors have become heavily dependent on production capacities in other countries. Thus, the lockdowns led to severe shortages, e.g. in healthcare and manufacturing. Consequently, many governments and business leaders started questioning the benefits of global trade instead of addressing vulnerabilities in supply chains. This demonstrates the relevance of supply chain resilience for general attractiveness and acceptance of global trade.

Supply chains’ ability to adapt to changing circumstances, absorb shocks and continue operations seamlessly is a central pillar for long-term economic success. Robust supply chains foster economic stability, attract investments and ultimately contribute to improved living standards.

Geopolitical risk management

Geopolitical shifts are reshaping the global economic landscape in a complex way. While the latest DHL Global Connectedness Index refutes the notion that a major retreat from globalization is underway, it also indicates changes in trade patterns between individual countries. At the same time, the World Trade Organization warns of increased trade restrictions.

As shifting alliances and geopolitical uncertainties have become important factors influencing international trade again, understanding and navigating these dynamics are crucial for governments and businesses to diversify their supply chains. In short, perspicacious risk management is highly relevant for states and companies alike.

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Partners in the next stage of globalization

Neither global trade nor resilient supply chains are a given. Addressing the challenges and opportunities the evolving geopolitical landscape presents requires coordinated action by businesses and politicians. The complex nature of these challenges necessitates a collaborative approach to positively shape the future of global trade. We consider the following three areas as key:

1. Pro-trade mindset

The world needs a clear commitment to and support for global trade. Governments and policymakers should develop robust policy frameworks encouraging free trade because even resilient supply chains suffer long-term if trade barriers increase over time.

2. Omnishoring

Leadership prioritising resilience and adaptability is crucial for navigating the uncertainties of global politics and the macroeconomic environment. Omnishoring strategies – the practice of diversifying sourcing locations – can be appropriate to reduce dependencies on individual locations. Additional logistics infrastructure is essential in the event of the loss of a major site and provides the necessary flexibility to maintain business at reasonable costs.

3. Sustainability

While substantial progress has been made, global trade remains a significant contributor to carbon emissions. To secure the acceptance of global trade, sustainability is a long-term necessity to reduce globalization’s environmental impact. While DHL Group is significantly investing in decarbonization technologies such as Sustainable Aviation Fuel (SAF), its large-scale production requires even more capital and huge investments. Leading logistics into a climate-neutral future is an arduous task that requires high priority from business leaders and policy-makers.

Discover

How is the World Economic Forum contributing to build resilient supply chains?

The Global Rewiring report highlighted that collective thinking on global value chains is changing due to increasing disruptions driven by geopolitical tension, climate change, and technological shifts.

The World Economic Forum’s Centre for Advanced Manufacturing and Supply Chains is at the forefront of future-proofing the global manufacturing industry. It supports sustainable growth by fostering innovation and accelerating the adoption of inclusive technology.

Learn more about our impact:

• The Global Lighthouse Network: We have brought together 132 manufacturing factories from various industries who are applying advanced technologies to boost productivity, enabling them to scale and replicate innovations.
• Circular value chains: We actively support manufacturers in incubating new pilots that reinforce trust in circular value chains, such as authenticating fashion products in second-hand markets and exchanging CO2 footprint data across supply chains.
• Resiliency: In partnership with Kearney, we developed the Resiliency Compass to help guide companies in navigating supply chain disruptions and enhancing their resilience.

Want to know more about our centre’s impact or get involved? Contact us.

A connected world creates a conducive environment for innovation, encourages investments and opens avenues for sustainable development. Let’s shape this more resilient and sustainable global trade together and maintain the benefits of globalization – the evergreen megatrend. The Annual Meeting of the World Economic Forum is an important focal point for cooperation and, therefore, the right place to start this journey.