Covid, War, Red Sea: 80% of Europe’s Supply Chain Rocked by Three Years of Crisis

Geopolitical shock to European sourcing . Before Donald Trump arrived for the second time in the Oval Office of the White House with the intention of revolutionizing global trade with a generalized increase in tariffs, supply chains had accumulated several shocks on their backs. Recent years have been marked by crises such as the Covid crisis, the outbreak of the conflict in Ukraine or the rebel attacks in the Red Sea, which, long before the U.S. president set out to disrupt the world order, have shaken value chains around the world.

Nearly 80% of companies in the European Union suffered some kind of supply chain shock between 2021 and 2023, according to the latest data compiled by Eurostat, of which as many as 56.7% rate the impact as severe. Five years of changes that began with the outbreak of the pandemic, which reduced EU exports by almost 10% in 2020, the biggest drop in 20 years.

The agency highlights that the greatest impacts have been in countries with a large weight of the manufacturing sector, such as Portugal or Italy, where up to 90.5% and 81.2% of companies saw their supply chains affected, respectively. Similarly, however, the impact on companies in countries such as Austria and the Netherlands, which are highly dependent on energy, has also been particularly high, with 88.3% and 84.5% of companies affected.

Covid or European environmental policies emerge as major disruptors

Among the main causes of these disruptions, the Covid outbreak still stands out as the major disruptor of the moment, with an average of 56.88% of European companies affected by the cuts in supply channels and border closures resulting from the health crisis. The impact of the pandemic was particularly high among Austrian (69.9%), Portuguese (64.3%) and Dutch (60.2%) companies.

The other two major causes that have affected the European business map are the European Union’s environmental policies and the sanctions against Russia following its invasion of Ukraine. “Designed to align European trade and production with the EU group’s environmental objectives, these policies have reshaped supply strategies and relationships,“ explains Eurostat, which puts the number of European companies affected at 38.3%. According to the study data, the greatest impact was again in Portugal, with an average of 49.1%.

The lowest impact, another 33.13%, corresponds to the impact of the energy sanctions against Russia. The entity points out, however, that these measures came into force for the first time in March 2022, i.e. only during half of the period analyzed by Eurostat.

Consequences and solutions to an ongoing crisis

The consequences of supply chain disruptions range from increases in the price of energy and virgin materials to problems with the mobility of goods, time, capacity or costs.

According to the report’s data, energy price volatility and related cost increases affected an average of 62.8% of European companies, while transportation bottlenecks and lack of virgin materials affected another 52.4% and 51.7% of companies, respectively.

Supply shortages particularly affected companies in Austria, with an average impact of 65.7%, followed by Portugal (63.4%) and Italy (55.9%). On the other hand, countries such as Ireland, with a more service-oriented economy, recorded the lowest impact, at 25%.

“The variation between economies with a greater weight of manufacturing and those specialized in services demonstrates how the sectoral composition and energy dependence marks the vulnerability of companies,“ the text adds.

The main response of companies has been to bet on digitization

To cope with disruptions, the strategy of EU companies has been based on one main lever: digitization. According to Eurostat data, 34.1% of companies increased the use of technologies in some of the processes of the value chain between 2021 and 2023.

Most of the effort, however, has been focused on the early stages of supply, with up to 33.9% of companies increasing their nearshoring production during the period. In parallel, another 33.8% say they have prioritized more reliable suppliers, compared to just 20.9% who have increased their network.

In all the countries of the European Union, moreover, the ratio of local production exceeded that of remote production, demonstrating, says the company, a trend towards the regionalization of supply chains. “The adoption of multiple strategies highlights the fact that none of them is sufficient on its own, and that the combination of digital tools, regional sourcing and a reliable network of suppliers is the best defense against future impacts on the chain,“ Eurostat concludes.