What happens to global supply chains if China attacks Taiwan? An interview with Ashray Lavsi
Tensions between China and Taiwan—two of our country’s biggest trading partners—are escalating, raising the specter of a full-scale invasion of the island. What would that mean for today’s hyperconnected global supply chains? We asked Ashray Lavsi that question and more.
Ashray Lavsi, principal at the global procurement and supply chain consultancy Efficio
David Maloney has been a journalist for more than 35 years and is currently the group editorial director for DC Velocity and Supply Chain Quarterly magazines. In this role, he is responsible for the editorial content of both brands of Agile Business Media. Dave joined DC Velocity in April of 2004. Prior to that, he was a senior editor for Modern Materials Handling magazine. Dave also has extensive experience as a broadcast journalist. Before writing for supply chain publications, he was a journalist, television producer and director in Pittsburgh. Dave combines a background of reporting on logistics with his video production experience to bring new opportunities to DC Velocity readers, including web videos highlighting top distribution and logistics facilities, webcasts and other cross-media projects. He continues to live and work in the Pittsburgh area.
Taiwan has essentially acted as an independent nation since 1949, when the nationalist government under Chiang Kai-shek retreated to the island following the communist takeover of mainland China. Yet China has made no secret of the fact that it wants to bring Taiwan back under its authority—ambitions that were brought to the fore earlier this year when China launched military drills that simulated an attack on the island.
If China were to invade Taiwan, it could have serious political and social consequences that would ripple around the globe. And it would be particularly devastating to our supply chains, says consultant Ashray Lavsi, who cites semiconductor shortages, disruptions to a crucial shipping lane, and increased ocean freight costs as a few of the potential consequences.
Lavsi is a principal at the global procurement and supply chain consultancy Efficio, where he specializes in solving complex supply chain, operations, and procurement problems, with a special focus on resilience. Prior to joining Efficio’s London office in 2017, he worked at XPO Logistics in the U.S. and the Netherlands.
Lavsi spoke recently with David Maloney, DC Velocity’s group editorial director, about what might happen if China moves to annex Taiwan—what shortages would likely arise, the impact on shipping lanes and ocean freight costs, and what managers should be doing now to prepare for potential disruption ahead.
Q: It’s no secret that China has ambitions on Taiwan. If China were to attempt to seize control of Taiwan, how would that affect the world’s supply chains?
A: There would be wide-ranging disruptions around the world. The United States does a lot of trade with both China and Taiwan. For example, the U.S. imports about $470 billion worth of goods from China, while China imports about $124 billion from the U.S. Meanwhile, Taiwan is the number-nine trading partner for the U.S. So all of this trade could come to a halt, depending on the level of conflict. Supplies would likely be disrupted, and trade routes could be affected, resulting in delays and higher shipping costs.
Furthermore, there would likely be disruptions to trade not just between the U.S. and China, but also across the board. It could very well be that the NATO members get involved, that South Korea gets involved, that Japan gets involved, the Philippines get involved, so it could very quickly spiral into widespread disruptions.
Q: We’ve seen big changes in the way businesses in Hong Kong operate since Britain handed control of Hong Kong over to China nearly 30 years ago. If China were to succeed in bringing Taiwan under its authority, would we see a similar outcome?
A: Indeed, I would expect so. I read recently that since around 2020, foreign direct investment in Hong Kong has dropped by nearly 50%, from $105 million to $54 million. The drop was primarily because of increased regulatory oversight. There are now a lot of restrictions on freedom of speech as well as tighter control over business operations. Something similar could very well happen in Taiwan if China were to succeed in taking over the island.
Q: As you mentioned, the United States conducts a lot of trade with both Taiwan and China, and both countries have become strategic supply chain partners. Beyond the diplomatic considerations, what would a military or economic conflict mean for the United States?
A: There is a lot of trade in goods like agricultural products, aircraft, electronics components, and machinery, and our access to many of those items could be cut off. On top of that, China controls 70% of the world’s rare earth minerals [which are crucial for the production of a wide variety of electronic devices]. So any conflict in the region would almost certainly result in many disruptions, particularly in critical sectors like technology and electronics—disruptions that would lead to shortages and increased costs.
Trade routes would also be affected, resulting in delays and higher shipping costs. U.S. companies would need to seek out alternative suppliers for critical materials or components they currently source in China, if they haven’t already. And if they haven’t lined up alternative suppliers, any hostilities could result in a complete halt in production.
Q: What effect would such a move have onthe global economy?
A: It’s been quite a few years since economies have just been localized. Any disruption now has widespread ripple effects across the world. As we discussed, any conflict between the United States and China naturally pulls in countries like Japan, South Korea, the Philippines, and the NATO countries, and it can very quickly spiral out.
Look at the semiconductor, or chip, shortages. If you recall, back in 2021, those shortages led to almost a half-trillion-dollar loss for the automakers, who lost out on sales of 7.7 million vehicles because they couldn’t meet demand. We could see a repeat of that situation—maybe even on a larger scale.
I found this statistic interesting—we often talk about the semiconductor shortages during the pandemic, but if you look at true production numbers, the actual production of chips went up from 2020, to 2021, to 2022. The shortage was driven not by a drop in production, but rather, by a surge in demand for PCs from people working from home. That demand has since dwindled, but we could still face a major semiconductor shortage [if much of our supply were cut off]. So that’s going to be a very big change, a very big disruption.
Q: Of course, the United States, along with a number of other countries, has taken steps to reduce its exposure to risk by bringing some semiconductor production back to its own shores. But it will take time to get those operations up and running, and their output would still be just a drop in the bucket compared to what’s needed. So what would a takeover of Taiwan mean for the overall semiconductor flow?
A: It essentially stops, right? Let me paint a picture that illustrates the importance of the Taiwanese semiconductor industry to global manufacturing. Semiconductors go into everything from cars to military equipment to computers to data centers to microwaves—they are in everything around us. Taiwan produces 60% of the world’s semiconductors and more than 90% of the advanced chips. Just let that sink in: More than 90% of all the advanced chips produced worldwide come from Taiwan, primarily from a big fabrication company called TSMC.
So the complexity and the precision required to make advanced semiconductors, combined with the limited number of companies around the world, make Taiwan’s position unmatched. The second-largest producer after TSMC is South Korean-based Samsung, which produces 18%, so that’s the gap that we are talking about.
As you rightly said, there are efforts by governments across the world to reduce their reliance on Taiwan. For example, TSMC is building three fabrication facilities in Arizona—the third with funding from the U.S. government. The first plant is set to go live next year and the third by 2030. But even once all three plants are up and running, the production volumes won’t be close to what TSMC produces in Taiwan. It’s going to take years to reduce our reliance on production in Taiwan. If that supply is cut off, the ripple effect will be tremendous.
Q: Setting aside the historical and political claims China has made on Taiwan, is Taiwan’s dominance in the semiconductor industry a main reason why China has set its sights on it?
A: It could be. China has been investing heavily in chip production—for instance, today, most, if not all, of the chips in the latest Huawei phones are locally produced in China. But China is still quite a few years behind TSMC. So that’s definitely going to be one of the big factors, right? One article that I found very interesting declared that chips are the new oil. If you control chip production, you control the global market.
Q: Let’s talk about the implications for shipping lanes. If you take a look at the map, you realize that the Taiwan Strait is a very important shipping lane for containerized goods coming out of both China and Taiwan. If China were to institute a military blockade, how would that affect the world’s container flows?
A: That flow would be affected tremendously. The Taiwan Strait plays a crucial role in global shipping, particularly for goods moving between Asia and the rest of the world. It is one of the busiest shipping lanes, and any blockage would severely disrupt global container flows.
Now let me put that into perspective. Fifty percent of the world’s containerships pass through the Taiwan Strait—50%. That’s a huge number. By comparison, the Suez Canal handles about 20% of global trade. Or to use another measure: 88% of the world’s largest ships by tonnage passed through the Taiwan Strait in 2022.
I’ve been reading up on this in the past few months and it seems that a military blockage is a very likely scenario—one that would cripple Taiwan’s economy without a full-scale invasion. So instead of a mounting a full-on attack, China might just block the strait, which would lead to delays in the delivery of goods, affecting global supply chains and causing shortages across Asia and the U.S.
Q: Given the escalating tensions between China and Taiwan, should shippers and manufacturers be preparing today for a potential conflict?
A: Businesses have to begin preparing today. If businesses were to say, “OK, I’m going to wait until conflict breaks out and then figure out what I’ll do,” it will be too late. You’re done. Your production comes to halt. You can no longer satisfy your customer requirements. So proactive measures are an absolute requirement.
Q: What should they do to prepare?
A: I would urge manufacturers and shippers to take what’s essentially a two-pronged approach.
First, you need to segment and identify your critical components, based on how crucial they are to your production operations and the risk associated with their sources, where they’re coming from. After you segment them, you list your top-priority items—the critical components that you absolutely cannot do without. You then split your supply chain into two, so that you have a much more redundant supply chain built for those critical items and then a second supply chain for everything else.
To build redundancy, you establish multiple suppliers and diversify them geographically. You also build in stringent contingency measures, which could include strategic stockpiling, nearshoring, and friendshoring, which is where you store inventory with an ally or in a friend consortium, as well as buying alternative components wherever possible. So all of those measures need to be put in place for the components that you’ve identified as absolutely critical for your production.
Q: What is the second prong?
A: The second prong is the need to manage increased costs. There’s no getting away from higher costs, right? If you’re holding more inventory, you have higher inventory carrying costs. And if you’re diversifying your supply base, that means you don’t have as much leverage [with individual suppliers]. You’re also going to be managing multiple supply chains, which requires an increase in human capital because you’ll need more people to manage the more complex supply chains that you’re putting in place.
One of the ways to manage costs could be by implementing strategic sourcing programs across the board that are aimed at mitigating some of the expenses. By taking these steps, manufacturers can safeguard their operations against potential disruptions and ensure continuity.
Q: A lot of U.S. companies have been nearshoring to Mexico, which has now become the United States’ leading trade partner. Is that a simple solution for companies looking to reduce their reliance on Asia?
A: It is one of the solutions. But you won’t be able to replace your Asian supply base immediately—as with semiconductors, it may take a few years to build out that capacity.
So you need to start stockpiling essential components now—particularly if you won’t be able to find alternatives. You want to make sure that you’re holding the right amount of inventory of the components that you absolutely need. So nearshoring is an option, but you need to be careful what you move to Mexico.
Q: Is that because moving production to Mexico will raise your costs compared to sourcing in Asia?
A: Yes, production costs will be higher compared to a place like Vietnam, where wages are currently lower than in Mexico. It might reduce the logistics cost, but I think there’s still a net increase overall because you’ll have higher expenses for things like regulatory compliance. Plus you’ll have the one-time cost of setting up the facilities.
Ideally, you’ll never have to face these problems we’ve been talking about, but it’s always better to be prepared.
Progress in generative AI (GenAI) is poised to impact business procurement processes through advancements in three areas—agentic reasoning, multimodality, and AI agents—according to Gartner Inc.
Those functions will redefine how procurement operates and significantly impact the agendas of chief procurement officers (CPOs). And 72% of procurement leaders are already prioritizing the integration of GenAI into their strategies, thus highlighting the recognition of its potential to drive significant improvements in efficiency and effectiveness, Gartner found in a survey conducted in July, 2024, with 258 global respondents.
Gartner defined the new functions as follows:
Agentic reasoning in GenAI allows for advanced decision-making processes that mimic human-like cognition. This capability will enable procurement functions to leverage GenAI to analyze complex scenarios and make informed decisions with greater accuracy and speed.
Multimodality refers to the ability of GenAI to process and integrate multiple forms of data, such as text, images, and audio. This will make GenAI more intuitively consumable to users and enhance procurement's ability to gather and analyze diverse information sources, leading to more comprehensive insights and better-informed strategies.
AI agents are autonomous systems that can perform tasks and make decisions on behalf of human operators. In procurement, these agents will automate procurement tasks and activities, freeing up human resources to focus on strategic initiatives, complex problem-solving and edge cases.
As CPOs look to maximize the value of GenAI in procurement, the study recommended three starting points: double down on data governance, develop and incorporate privacy standards into contracts, and increase procurement thresholds.
“These advancements will usher procurement into an era where the distance between ideas, insights, and actions will shorten rapidly,” Ryan Polk, senior director analyst in Gartner’s Supply Chain practice, said in a release. "Procurement leaders who build their foundation now through a focus on data quality, privacy and risk management have the potential to reap new levels of productivity and strategic value from the technology."
Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.
That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.
Nearly half (48%) of the SMEs surveyed said they expect higher holiday sales compared to 2023, while 44% said they expect sales to remain on par with last year, and just 8% said they foresee a decline. Respondents said the main challenges to hitting those goals are supply chain problems (35%), inflation and fluctuating consumer demand (34%), staffing (16%), and inventory challenges (14%).
But respondents said they have strategies in place to tackle those issues. Many said they began preparing for holiday season earlier this year—with 45% saying they started planning in Q2 or earlier, up from 39% last year. Other strategies include expanding into international markets (35%) and leveraging holiday discounts (32%).
Sixty percent of respondents said they will prioritize personalized customer service as a way to enhance customer interactions and loyalty this year. Still others said they will invest in enhanced web and mobile experiences (23%) and eco-friendly practices (13%) to draw customers this holiday season.
That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.
In response, most retailers (78%) say they are investing in technology tools that can help both frontline workers and those watching operations from behind the scenes to minimize theft and loss, Zebra said.
Just 38% of retailers currently use AI-based prescriptive analytics for loss prevention, but a much larger 50% say they plan to use it in the next 1-3 years. That was followed by self-checkout cameras and sensors (45%), computer vision (46%), and RFID tags and readers (42%) that are planned for use within the next three years, specifically for loss prevention.
Those strategies could help improve the brick and mortar shopping experience, since 78% of shoppers say it’s annoying when products are locked up or secured within cases. Adding to that frustration is that it’s hard to find an associate while shopping in stores these days, according to 70% of consumers. In response, some just walk out; one in five shoppers has left a store without getting what they needed because a retail associate wasn’t available to help, an increase over the past two years.
The survey also identified additional frustrations faced by retailers and associates:
challenges with offering easy options for click-and-collect or returns, despite high shopper demand for them
the struggle to confirm current inventory and pricing
lingering labor shortages and increasing loss incidents, even as shoppers return to stores
“Many retailers are laying the groundwork to build a modern store experience,” Matt Guiste, Global Retail Technology Strategist, Zebra Technologies, said in a release. “They are investing in mobile and intelligent automation technologies to help inform operational decisions and enable associates to do the things that keep shoppers happy.”
The survey was administered online by Azure Knowledge Corporation and included 4,200 adult shoppers (age 18+), decision-makers, and associates, who replied to questions about the topics of shopper experience, device and technology usage, and delivery and fulfillment in store and online.
An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.
According to Hakala, automation is an inevitable course in Cimcorp’s core sectors, and the company’s end-to-end capabilities will be crucial for clients’ success. In the past, both the tire and grocery retail industries have automated individual machines and parts of their operations. In recent years, automation has spread throughout the facilities, as companies want to be able to see their entire operation with one look, utilize analytics, optimize processes, and lead with data.
“Cimcorp has always grown by starting small in the new business segments. We’ve created one solution first, and as we’ve gained more knowledge of our clients’ challenges, we have been able to expand,” Hakala said in a release. “In every phase, we aim to bring our experience to the table and even challenge the client’s initial perspective. We are interested in what our client does and how it could be done better and more efficiently.”
Although many shoppers will
return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.
One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.
Given the scope of the problem, it’s no wonder online shoppers are worried about it—especially during holiday season. In its annual report on package theft trends, released in October, the
security-focused research and product review firm Security.org found that:
17% of Americans had a package stolen in the past three months, with the typical stolen parcel worth about $50. Some 44% said they’d had a package taken at some point in their life.
Package thieves poached more than $8 billion in merchandise over the past year.
18% of adults said they’d had a package stolen that contained a gift for someone else.
Ahead of the holiday season, 88% of adults said they were worried about theft of online purchases, with more than a quarter saying they were “extremely” or “very” concerned.
But it doesn’t have to be that way. There are some low-tech steps consumers can take to help guard against porch piracy along with some high-tech logistics-focused innovations in the pipeline that can protect deliveries in the last mile. First, some common-sense advice on avoiding package theft from the Security.org research:
Install a doorbell camera, which is a relatively low-cost deterrent.
Bring packages inside promptly or arrange to have them delivered to a secure location if no one will be at home.
Consider using click-and-collect options when possible.
If the retailer allows you to specify delivery-time windows, consider doing so to avoid having packages sit outside for extended periods.
These steps may sound basic, but they are by no means a given: Fewer than half of Americans consider the timing of deliveries, less than a third have a doorbell camera, and nearly one-fifth take no precautions to prevent package theft, according to the research.
Tech vendors are stepping up to help. One example is
Arrive AI, which develops smart mailboxes for last-mile delivery and pickup. The company says its Mailbox-as-a-Service (MaaS) platform will revolutionize the last mile by building a network of parcel-storage boxes that can be accessed by people, drones, or robots. In a nutshell: Packages are placed into a weatherproof box via drone, robot, driverless carrier, or traditional delivery method—and no one other than the rightful owner can access it.
Although the platform is still in development, the company already offers solutions for business clients looking to secure high-value deliveries and sensitive shipments. The health-care industry is one example: Arrive AI offers secure drone delivery of medical supplies, prescriptions, lab samples, and the like to hospitals and other health-care facilities. The platform provides real-time tracking, chain-of-custody controls, and theft-prevention features. Arrive is conducting short-term deployments between logistics companies and health-care partners now, according to a company spokesperson.
The MaaS solution has a pretty high cool factor. And the common-sense best practices just seem like solid advice. Maybe combining both is the key to a more secure last mile—during peak shipping season and throughout the year as well.