Article written for Quarterra by Ashley Scoby of Magnetic Ag

The state of global supply chains post-COVID is no secret: things have not been smooth, especially in North America.

Demand for goods in the U.S. initially cratered at the beginning of the pandemic: workers lost their jobs, manufacturing capacity decreased, and suddenly shipments of exports into the U.S. were canceled.

But in the summer of 2020, demand for imports exploded. The U.S.—a huge driver of international trade—was ready to import again. But by then, the logistics around international trade were starting to fail. For over a year now, there has been a massive shortage of shipping containers, congestion has stopped up major international ports and rail terminals, and shipping rates have seen huge increases.

Delays abound, and there doesn’t seem to be an end in sight for the U.S.-heavy supply chain issues.

But a little further south in Latin America… could global supply chain delays actually work in the region’s favor?

Let’s take a step back:

Latin America has seen more of a trend towards shorter supply chains (in other words, supply chains less susceptible to crisis-level disruption and delays).

Long before the COVID-19 pandemic forced more of the world to get familiar with phrases like “supply chain” and “shipping containers,” some countries in Latin America, like Brazil, Peru, and Chile, were already shortening their supply chains. At the time, experimenting in this way was less of a response to global shipping crises, and more of a strategy to promote producer-consumer trust, and improve food traceability. But now that the world’s supply chain systems have been under immense pressure for the better part of a year and a half, could this trend extend even more into the future?

In short, condensed supply chains mean less opportunity for delays. The fewer steps in the process, the more quickly products can move from point A to point B.

Latin America’s experience with shorter supply chains has been helpful during the pandemic—and they could stand to benefit even more, as other supply chains, particularly in North America, struggle to get back to any sort of equilibrium.

At the height of the pandemic, in summer 2020, supply chain management expert Juan Cartier wrote in Forbes that Latin America was in a good spot because of supply chain “resilience”: flexibility and adaptability in the face of constantly changing circumstances and a global health crisis.

The fact that the region already has experience with nearshoring (and not relying solely on long, messy supply chains) means it’s already a little more insulated from some of the same challenges facing the U.S., for example.

But the global supply chain problems could lead to more change...

How supply chain issues are leading to commodity inflation — and why this could be good for Latin America

As supply chains become increasingly tangled, and goods are delayed from point A to point B, prices rise, especially for commodities. Latin America is a major commodity exporter to countries all over the world — so the rising prices can actually be interpreted as good news for the region.

According to the United Nations, these rising prices could be a boost to Latin America’s economic recovery in the wake of COVID. Throughout the pandemic, prices for food, for example, have increased 27%—good news for a region so reliant on exporting agricultural products.

According to UNCTAD, 20 out of 33 Latin American-region countries depend on commodities for greater than 50% of their total merchandise export revenue. Traditionally, being so commodity-dependent hasn’t always been a positive for the region. But now, thanks to the climb in prices, the region is in position to take advantage of the world’s demands for those commodities.

China, in particular, will be a Latin American export market to watch closely. The Asian country’s demand for products from the region stayed strong in 2020, despite demand decreasing in, for example, the U.S. Clearly, North American supply chain issues haven’t negatively impacted all international trade routes.

Countries like Chile, Peru, and Brazil are big exporters to China, with products like copper, iron ore, soybeans, and beef. They could also stand to benefit from China’s economic recovery post-COVID, and its continued demand for Latin American exports.

Looking forward

Thanks to the global pandemic and economic downturn, the global economy is far from booming right now. Supply chain issues are affecting nearly everyone and everything. But within those challenges could potentially be opportunities for regions like Latin America.

Brazil, for example, is uniquely positioned to scale its economy over the coming years—even as supply chain woes plague other countries. Some experts, like Mauricio Tarazona, Trade Working Capital Finance Head of Citi Latin America, even say that Brazil could be the top exporter of agricultural products over the next 10 years.

While Brazil’s individual situation doesn’t necessarily extend to the entire Latin American region, other countries could still take advantage of the current global conditions and their place as reliable commodity exporters.

In the long term, Latin American countries could be big winners in the trend towards nearshoring, according to an Economist Intelligence Unit report. They’ll have to overcome infrastructure challenges and political instability, for example, but could still see an overall benefit economically because of their shorter supply chains. According to UNCTAD, Latin America will have to focus on strengthening domestic institutions and policy frameworks to increase the region’s economic resilience.

How each individual country responds to the constantly-changing global economic situation remains to be seen. But at least in the shorter term, supply chain issues continue to bump commodity prices higher than normal. And Latin America is prepared to take advantage of its status as a major exporter, and enjoy the potential windfall of those escalated prices.

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Silver Linings: Global Supply Chain Issues & Latin America