How Changes in the Stock Market Impact Supply Chain and Logistics
While some of the shifts we see in the stock market during turbulent times are a direct cause of changes in the supply chain, it’s also a two-way street. Each side impacts the other, sometimes to the point of magnifying smaller dips into more significant slumps.
As share prices in the market go down around the world, they include falling prices for both national and global freight and logistics companies. It’s particularly rough during a global downturn because, for better or for worse, many companies have been relying on international growth to help domestic business. In a crisis with ground zero in China, these companies might find themselves scrambling to sell off as a way to balance their losses.
Taking a Look at the COVID-19 Crisis
The relative international economic importance of China has increased massively in the last couple of decades, magnifying its impact on the rest of the world when it experiences a downturn. Still, increased reliance on offshore supply and logistics is enticing for companies who want to lower supply chain costs. But this tactic leads to a more rapid and severe onset of supply-chain disruption if these countries experience economic problems, such as the case of COVID-19 in China.
Due to various factors including distance, language barriers, and complicated logistics, many companies don’t even have complete knowledge of all the global companies involved in their supply chain. This further highlights their unpreparedness when facing sudden shifts in the market. While previous market-altering disasters have taught companies to keep some extra inventory on hand, it’s still typically not enough to operate without production from China for more than a couple of months or so.
How to Prepare for Stock Market Fluctuations
To avoid falling into a sharp recession trap, supply chain and logistics companies should maintain solid continuity plans. This involves identifying potential threats to the supply chain, changes in the market, and reactions of governments in order to implement a system for appropriate prevention and recovery in any given scenario.
For example, mapping jurisdictions of vendors, applying risk ratings to other countries, and identifying the risk of individual vendors are all ways to secure a company. Preparing alternative suppliers for a moment’s notice also provides an escape plan in the event that things turn south.
Predicting large market fluctuations ranges from difficult to impossible, so staying prepared for the worst is often the best you can do. Now is a good time to reevaluate and strengthen your plans for avoiding a crisis in the future.
For help with navigating through these uncertainties and fluctuations, contact us and consult with one of our logistics/supply chain specialists today!