COVID-19 and the supply chain: an irreversible and accelerating change
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The rate at and scale of which the COVID-19 pandemic has impacted global trade is unprecedented, and the situation has revealed the fragile nature of the modern supply chain. To understand more about the macro-economic, geo-political and operational implications of the current circumstances, last week we hosted an EMEA-wide webinar "The Global Economy, Supply Chain and COVID-19 – Impact and Implications." We spoke with Dr Jerome Haegeli, Group Chief Economist, Swiss Re, and Prof Dr Erik Hofmann, Director of the Institute of Supply Chain Management, University of St Gallen, about the changes in the supply chain and what this means for (re)insurance. Below are some of my reflections.
Supply chain transparency, risk management and redundancy are important concepts
A few years ago, someone used the image of a car being pushed up hill to describe climate change. The car (greenhouse gas emissions) need pushing up to a certain point, but then suddenly (at the top of the hill), the change becomes irreversible and does not need further pushing to accelerate.
What Jerome Haegeli and Erik Hoffmann said during the Global Economy, Supply Chain and COVID-19 webinar is in line with that image. We can see that COVID-19 is highlighting and accelerating many changes, but none of these are particularly new. Globalisation had in fact peaked well before the spring of 2020. The economy and financial markets have been heading in different directions for a while, and there is a heightened sense of awareness that supply chain transparency, risk management and redundancy are important concepts. COVID-19 has brought these existing trends to the forefront.
Awareness of the risks will shape insurance and reinsurance needs in the coming years
This is a political and economic call to action in which a central point is to coordinate measures so that we can get out of the recession quickly. It is also a call to action for transport and logistics professionals along with their insurance and reinsurance partners. The first step is to invest in transparency, not only of supply chains but also demand chains. Together these chains form a network of interdependent connections – as highlighted by the recent disruptions on the restocking of daily supplies such as toilet paper or yeast. This step can then be used to form the basis for a much more proactive management of these supply-demand networks. "Just in time" and "minimal cost" goals will be more strongly complemented by taking "redundancy" and "resilience" into consideration. We will see more restructuring of supply networks towards a more balanced mix of local, regional and global partnerships.
Just like the image of the car on the hill I mentioned above, the change in supply chains is irreversible and only accelerating. These changes and a heightened awareness of the risks will also shape insurance and reinsurance needs in the years to come. Swiss Re offers a broad range of solutions around supply chain analytics to establish a solid fact base and help clients navigate the changes ahead.
We kindly invite you to see the full recording of the webinar "The Global Economy, Supply Chain and COVID-19 – Impact and Implications" at the link below.
For more information on the topic, we have also compiled some brochures to provide you with further information on Supply chain and COVID-19:
- Factsheet on Supply Chain Analytics: Building an outside-in view of risks for insurance
- Sigma 4/2019: Advanced analytics: unlocking new frontiers in P&C insurance
- Swiss Re Institute's Economic Insights: Slowdown in emerging market trade: a supply-chain perspective