The Coronavirus Pandemic Showed Why We Need Shorter, Simpler Supply Chains
The pandemic’s impact on the economy is the equivalent of scrambling the pieces of a puzzle and then trying to put it back together in a new shape.
But one thing is clear: the U.S. economy needs shorter supply chains that can react more quickly in crisis situations. Our inability to generate enough personal protective equipment (PPE) and enough testing swabs, months into the pandemic, is simply unacceptable. Better resilience and flexibility are achievable goals.
Shorter, simpler supply chains also help with sustainable production. Long and complicated supply chains require more air and water transportation, generating more greenhouse gases. International shipping alone, especially container ships, accounts for about 2 percent of all carbon dioxide emissions, about the same as Germany. China alone has more than 30 major ports, including Qingdao (shown above).
Beyond that, the more links in the supply chain, the more difficult it is for end producers to get a full picture of their carbon emissions. Faced with a policy change such as a carbon tax, executives may make decisions that have perverse effects on emissions on the other side of the globe. (My colleague at the Progressive Policy Institute, Paul Bledsoe, is about to release a terrific new paper on clean energy manufacturing policy).
The growing role of digital manufacturing is crucial. “You’ve got to be thinking about sustainability at the design stage,” says Joseph DeSimone, co-founder and executive chairman of manufacturing startup Carbon. New production technologies, such as the light-based 3D printing that Carbon has pioneered, make it possible to combine multiple parts into one part, using less material and requiring fewer suppliers.
In addition, focusing on sustainability allows a tighter and more effective recycling loop. “Carbon is committed to biobased feedstocks” says DeSimone. The key, he says, is develop chemistries and business models that encourage products to be more easily recycled.
Such an approach would benefit the European Union, which is aiming for a “green recovery” from the coronavirus recession. One problem the EU is facing is that tightening up emission requirements may push manufacturing and energy production overseas to countries with laxer standards. To dissuade such carbon leakage, the EU is considering a carbon border tax, otherwise known as a carbon border adjustment mechanism, which would impose additional fees on imports based on their greenhouse gas footprint.
Assessing the greenhouse gas emissions of a good or service produced in a different country is a difficult question. Detailed data is needed. Without such data, it becomes necessary to use averages from either the exporting or the importing country.
But assigning a greenhouse gas emission to an imported product gets almost impossible with complicated supply chains that cross multiple national borders. Cotton is grown in one country, shipped to another country to make fabric, which is then shipped to another country to make clothes, which is then shipped to the end consumer in another country. Parts are made in one country, shipped to another country for assembly, and then shipped back to the original country.
A recent study has estimated that such “carbon in transit” accounts for about 10% of global emissions. With such complicated supply chains, it becomes difficult to fully assess the actual carbon footprint of a product.
As Steve Jobs once said, simpler is harder than complex. That’s something the global trading economy needs to learn as well.
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