In today’s climate, where we’ve become accustomed to clicking, buying, and having items show up at our front doors, many Americans have experienced the shock of not being able to find needed items quickly and easily.
But why is this happening? What is behind the supply chain disruptions we are seeing? And how does it relate to inflation?
What is causing the supply chain issues?
The pandemic and its lingering effects continue to disrupt every aspect of the supply chain — not just in the U.S. but globally.
“Supply chain” refers to the ordinarily invisible pathway of products from manufacturing to logistics and transport that gets goods from where they are grown, mined, or manufactured to where they are going.
At the end of each chain lies a consumer or another company who has paid for the finished product. The scarcity of products paired with inflation has combined to form a perfect storm and caused prices to soar.
When did the supply chain issues start?
Disruptions of the supply chain go back to the beginning of the pandemic.
Factories where many products are manufactured — located in South Korea, Taiwan, China, Vietnam, and European industrial behemoths such as Germany — were struck by coronavirus outbreaks. Numerous factories were forced to reduce production or shut down because employees were sick or in lockdown.
In response to manufacturer slowdowns, shipping companies cut their schedules to anticipate that demand for moving goods around the world would drop.
The combination proved to be disastrous. While demand for some things — travel for vacations, spa services, and restaurant meals dramatically declined, Americans took the money they would have used for those experienced and redirected it to purchase items for their homes, which were also doubling as classrooms and workspaces.
People bought new printers and office chairs, video gaming consoles, and gym equipment in the U.S. and worldwide. They spruced up their homes, adding on additions, buying lumber and paint for projects, and making their home-work life more comfortable.
The quantity and timing of the purchases swamped the system.
Why didn’t the factories produce more products?
Many factories ramped up production but this only resulted in more troubles.
Most factories bring in components to produce the things they export. For example, flat-screen TVs made in Taiwan may require parts from Europe, or a computer in China may need a chip from Malaysia or South Korea.
The steep increase in demand combined with fewer workers clogged the system for transporting goods to the factories where they are needed.
Simultaneously, finished products — many made in China — piled up in warehouses or on docks throughout Asia due to an extreme shortage of shipping containers, the steel boxes used to carry goods on cargo vessels.
Why are so many container ships stuck?
In simple terms, container ships were stuck in the wrong places. At the beginning of the pandemic, China shipped large volumes of protective gear like gowns and masks worldwide.
Containers were shipped around the globe, including to countries that don’t usually receive products from China, like South Asia and West Africa.
Once unloaded, the empty containers piled up where they were delivered while Chinese factories were producing products to meet the surge of orders from wealthier places like Europe and North America.
Because of the increased demand for containers, the cost of moving cargo around the world soared. At the same time, at ports in those wealthy areas where containers were steadily arriving, the heavy influx of ships overwhelmed the delivery destination’s docks.
At ports such as Oakland, Long Beach, and Los Angeles in California, dozens of ships were forced to anchor offshore for days or weeks, waiting to be unloaded.
Simultaneously, dockworkers and truck drivers often were themselves stuck in COVID-19 quarantines, which reduced the number of workers available to unload the goods from container ships, further slowing down the process.
What is in short supply?
Most manufactured or produced items — from electronics to shoes to chemicals — are in short supply. In other words, almost everything.
Shortages cause further shortages, and the pattern continues. Suppose a manufacturer produces a product that requires 25 chemicals to make, and one of those chemicals is stuck on a container ship in the Pacific.
Missing one component can result in halted production until the necessary part of the item is delivered.
Can the supply chain problems all be blamed on the pandemic?
While the pandemic is a primary cause of supply chain issues, the volatility of the market and production of goods has been on the horizon for quite a while.
Manufacturers kept lean inventories for decades to limit costs and increase profits. One example is the meat industry. Beef is more scarce, and prices are high, but this can largely be blamed on the consolidation by meatpackers and the elimination of capacity to increase profitability and costs.
Similar “choke points” exist throughout countries in the supply chain.
Global issues such as Russia’s war on Ukraine and soaring inflation also have contributed to negative economic effects to consumers.
When will supply chain shortages end?
That is the critical question. No one can accurately predict when the shortages will end.
However, many economists indicate that the problems will continue for at least another year. When companies began seeing shortages, many ordered increased amounts of products, which sent further surges toward warehouses and ports — and the cycle continues.