Exiger Supply Chain Trends Report, May 2022

Exiger, a global leader in supply chain risk management SaaS solutions, called on our experts to highlight May 2022 supply chain news and trends across thematic areas:

Climate, Disasters, & Disruption

Labor & Industry

Risk & Innovative Mitigation

Threats & Regulatory Compliance

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Climate, Disasters, & Disruption

  • Export bans throughout Southeast Asia are affecting global commodity prices
global trade impacted by export restrictions
  • To safeguard its domestic supply, India prohibits wheat exports. Though it consumes most of the wheat it produces, India is the second largest producer of wheat globally and had set goals to export 10 million tons between 2022-23, mostly to developing countries in Southeast Asia. An unprecedented heatwave has diminished the national harvest, however, which came in four million tons less than expected and sent wheat flour prices to a 12-year high. Global wheat prices had already spiked by more than 40 percent since the beginning of 2022 due to shortages and disruptions stemming from the war in Ukraine (AP News; France 24).
  • Days after wheat export ban, India limits sugar sales abroad. For the first time in six years, India is planning to restrict raw sugar exports, citing an effort to limit a surge in domestic prices. India is the world’s largest producer of raw sugar and second largest exporter behind only Brazil, which itself has faced lower than normal sugar output this year (Bloomberg).
    • Malaysia limits chicken exports amid concerns of cartel pricing. Starting June 1, Malaysia will ban certain chicken sales while it investigates allegations of cartel pricing; the country has been struggling to keep domestic food prices down as a whole (Bloomberg).
    • Indonesia resumes palm oil exports, but global cooking oil supply remains low. Despite not yet solving the balance between exports and domestic supply, Indonesia eased its restrictions on palm oil exports as prices in the country regained composure. Cooking oil prices globally, however, remain high due to export bans in Kazakhstan, Egypt, Kosovo, and Turkey (Reuters).
  • The global energy market and supply—already strained by COVID-19 disruptions, Russia’s invasion of Ukraine, sanctions, and other factors—could reach a tipping point this summer. In 2014, power shortages in India reportedly reduced the country’s GDP by five percent. With power supplies expected to be tight in countries around the world and at least a dozen U.S. states at risk of electricity outages this summer, the economic impact of blackouts could be significant (Bloomberg; Exiger Russia-Ukraine Knowledge Hub).
  • Chinese industrial output drops 2.9 percent in April under China’s COVID Zero policy, causing global supply shocks. Supply chain snags have affected companies from Tesla to Apple, while export growth slowed in April to the weakest pace since June 2020 as operations underwent shutdowns at the world’s largest port in Shanghai.
  • Port congestion remains disruptive. Ranking worst and second worst globally in time to load/unload are the Ports of Oakland and L.A., respectively. In China, the Ports of Quingao and Shanghai are heavily congested with bottlenecks worsening due to COVID lockdowns (CNBC)

Labor & Industry

  • China’s Communist Party is prompting its senior officials to divest their overseas assets. According to a CCP internal directive, the Chinese government will block promotions for senior officials whose spouses or children hold significant assets abroad in an effort to insulate itself from the types of sanctions directed at Russian oligarchs (WSJ).
  • Chinese Communist Party gives all government affiliates two years to stop using foreign computers. Beijing’s directive coincides with its decade-long effort to replace foreign technology with domestically produced alternatives. HP and Dell, China’s most popular PC brands, are likely to suffer. Last month, Taiwan initiated a comparable policy prohibiting Chinese electronics for government use (Bloomberg).
  • Russia dominates the global nuclear reactor and fuel supply chains and infrastructure, according to a new paper from Columbia University’s Center on Global Energy Policy. Of 439 operational nuclear reactors globally in 2021, 38 were in Russia, 42 were made with Russian nuclear technology, and 15 were under construction with Russian technology. Russia mines approximately six percent of global raw uranium produced annually and owned 40 percent of total global uranium conversion infrastructure in 2020. Read recommendations for reducing or eliminating dependence on nuclear supply chains from Russia (CNBC).
  • Container lines are raking it in. By the end of 2022, the container-shipping industry will have earned a staggering half a trillion dollars of operating profit from two years of supply-chain misery. Some aim to use the profit to turn themselves into vertically integrated, end-to-end logistics giants (Bloomberg).
  • Canada’s first rare earth elements (REEs) mine has begun shipping concentrated ore. The Nechalacho mine, located on a deposit that holds 15 different REEs, uses no water. It will send its ore to a Canadian refiner, and subsequently to a customer in Norway where the minerals will be separated and processed into bars. The mine hopes to produce 25,000 tons of concentrate yearly by 2025 (Toronto Star).
  • Peru, the world’s second-largest copper producer, may lose out on billions in mining investment if the government fails to defuse protests impacting mining production. The Las Bambas mine, owned by a Chinese company, remains closed after operations were suspended in April due to protests (Reuters).
  • Spanish Prime Minister says Iberian Peninsula can ease Europe’s gas crunch. Pedro Sanchez claimed that his country along with much of Southern Europe can provide much needed relief from Russian-related energy woes. According to Sanchez, Spain accounts for 37 percent of the EU’s total regasification capacity (CNBC).
  • European Commission unveils $220 billion dollar plan to reduce EU’s dependency on Russian energy over next five years. The proposal comes as the region faces liquefied natural gas bottlenecks, Hungary seeks $16-19 billion to move away from Russian energy, and European energy companies seemingly concede to Russia’s demands that purchases of Russian natural gas occur in rubles (Bloomberg, CNBC, Washington Post).
  • A six-year, 29-percent decline in the workforce of Class I freight railroads is hobbling already delicate supply chains. While much attention has been paid to the trucking industry and port congestion, Politico takes a deeper look at railroad worker attrition and labor shortages, underlying labor disputes and collective bargaining, and how the matter could make its way before Congress (Politico).

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Risk & Innovative Mitigation

  • Singapore’s only multi-purpose cargo port signs MoU with Skyports aiming to leverage cargo drone delivery. The Jurong Port in Singapore, one of the most trafficked in the world, agreed to a memorandum of understanding with British “advanced air mobility” company Skyports to explore the development of “ship-to-shore infrastructure” via drones. National security stakeholders have stressed the value of this technology as military logistics are paramount to U.S. and Chinese interests in the region (The Straits Times; National Defense).
  • On May 23, the U.S. and a dozen initial partner countries launched the Indo-Pacific Economic Framework for Prosperity. IPEF seeks to expand U.S. economic leadership in the region and plans to make supply chains more resilient, among other goals (White House).
  • Former Coca-Cola chemist receives 14-year U.S. prison sentence for trade secrets theft on behalf of China, while Taiwan passes criminal law on economic espionage. The May 2022 sentencing in U.S. federal court arose from the chemist’s 2021 conviction for stealing trade secrets owned by companies including Dow Chemical, PPG Industries, Sherwin-Williams, and Eastman Chemical (the case related to BPA coating used on the inside of cans). The defendant was found to be acting on behalf of the Chinese province of Shandong and the Chinese Communist Party as part of China’s “Thousand Talents” program (Bloomberg). Meanwhile, the Taiwanese parliament passed a bill making economic espionage a crime punishable by up to 12 years in prison, part of a crackdown on theft of technology in semiconductors and other fields (Nikkei Asia).
  • Russia found to be leveraging “civilian” classified ships to pass military cargo through the Bosporus Strait. Analysts have concluded that Russia is violating the recently revived Montreux Convention, which prohibits military shipping traffic during wartime. Prior to Russia’s invasion of Ukraine, the Montreux Convention had not been used since World War II (The Maritime Executive).
  • FIATA and maritime software providers announce digital bill of lading system leveraging blockchain technology. The new digital process by the International Federation of Freight Forwarders Associations aims to enhance document authentication and provide a long-term deterrence to illicit trade for maritime security applications (Transport Topics).
  • UK lawmakers launch investigation into alleged use of British components for Russian weapons deployed against Ukraine. Research by Ukrainian military officials on recovered Russian weapon systems showed a “consistent pattern” of Russian dependence on foreign-made weapon components, specifically citing the use of UK-manufactured, high-frequency transistors in a Russian jamming system. The UK launched an arms embargo against Russia in 2014 and, in March 2022, banned dual-use component exports to Russia (The Guardian).
  • NIST releases updated cybersecurity guidance for managing supply chain risks. The National Institute of Standards and Technology released updated cybersecurity guidance for managing risks in the supply chain. Among other things, the guidance encourages organizations to consider vulnerabilities not only of a finished product they are considering using but also of its components—which may have been developed elsewhere—and the journey those components took to reach their destination (NIST; Exiger)

Threats & Regulatory Compliance

  • Sanctioned Russian oil tanker raises Iranian flag to evade European sanctions, later seized for carrying sanctioned oil. The Russian vessel, owned by U.S.-sanctioned TransMorFlot LLC, was stuck off the coast of Greece due to mechanical issues as it carried oil from Iran. Days later, U.S. authorities detained the tanker for violating Iranian and Russian sanctions. In April, Bloomberg reported that 18 Russian-flagged vessels had switched flags to conceal obvious links to Moscow (Balkan Insight; Bloomberg; The Maritime Executive).
  • Reuters illuminates ship-to-ship transfers between Venezuela and Iran. According to shipping data, the two countries engaged in a ship-to-ship (STS) transfer off the Maldives. STS transfers are often employed by sanctions-dodging vessels to conceal shipment origins; Venezuelan and Iranian vessels commonly use STS transfers off the coasts of Malaysia and Africa as well as in the Caribbean (Reuters).
  • As the U.S. mulls a Hikvision SDN list designation, the company’s shares plummet. According to an early May report, U.S. lawmakers seem intent on adding surveillance giant Hangzhou Hikvision Digital Technology Co. to the Specially Designated Nationals (SDN) list. This would effectively cut off Hikvision from the Western financial system—going beyond the import and investment restrictions under NDAA 889 and 1260H, among other trade-restriction lists—and impact Hikvision’s contracts with corporations and governments worldwide. The move would make Hikvision the largest company on the SDN list, which is managed by the Office of Foreign Assets Control in the U.S. Treasury. Hikvision has been linked to Uighur repression in Xinjiang and its surveillance equipment is considered vulnerable to Chinese infiltration (Bloomberg).
  • Costa Rica declared a state of emergency after cyberattack by Russia-linked Conti ransomware group impacted multiple government agencies. The attackers initially hacked into Costa Rica’s Finance Ministry on April 12, and from there were able to spread ransomware to other agencies. The attack interrupted the country’s tax collection, exposed citizens’ personal information, and “severely affected the country’s ability to function” (NBC).
  • Several major Chinese companies are curtailing tech exports to Russia. This includes PC giant Lenovo, smartphone and gadget maker Xiaomi, and drone leader DJI. The pullback follows waves of wide-ranging financial sanctions and export controls by the U.S. and its allies, with the U.S. threatening to punish Chinese companies that flout the rules. Chinese tech firms dominate the Russian market for various electronics (WSJ).
  • Canada is final Five Eyes nation to ban 5G equipment from Huawei, ZTE. The decision follows a nearly four-year security review disrupted by geopolitical tension between Ottawa and Beijing, stemming from Canada’s arrest of Huawei’s CFO to face extradition to the U.S. for criminal charges relating to Huawei’s role in evading U.S. sanctions (WSJ).

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