Global supply chain crisis causes increase in prices and shortages

Cargo ships and trucks have been slowed or halted by the ongoing logistics jam.

The news recently has been littered with pictures of cargo ships waiting outside of major ports all across the world, unable to dock and unload their items. While this has been a widespread media-covered story lately, given the backups could mean problems getting Christmas presents and other holiday items, it has been going on since March 2020.

At the beginning of the pandemic, stores and companies across the world expected to suffer an excess in production, so companies cut their supplies in half to match the expected consumer demand so they wouldn’t lose money on unused products. However, with everyone working, living and raising their children solely out of their homes, the complete opposite effect than what companies had predicted happened. People were now building school rooms, offices and gyms in their homes—ordering all of the supplies online.

Since the models that companies had created to predict the consumer demand had been horribly wrong, they had to scramble to get the materials they needed to meet the new demand. This could be seen in spring and summer of 2020 when it was impossible to get any kind of exercise equipment, and home office furniture almost doubled in price.

Although big companies needed shipment containers to fulfill their orders, bigger export countries were working constantly to get out personal protective equipment (PPE) to every country in the world, even those that didn’t have anything to trade with. Shipping containers were sitting, and do continue to sit, empty in countries that don’t have any exports to send back in the container to Asia, the biggest supplier of PPE. However, without the shipping containers, there is no way for the United States’ big manufacturers in China to get the items to us. Since the demand is so high and supply is so low on a majority of items, prices continue to increase, and as those prices increase companies and manufacturers are more motivated to get their shipping containers back to profit off the new market prices. So empty shipping containers are being shipped back to the major manufacturing countries, which is part of the reason for the backups at the ports. Not all the cargo ships depicted in the news are even carrying materials in them, some are still empty and just trying to pick up their new shipments.

The Biden Administration is working to keep the ports open 24/7; however, the supply chain is all interconnected, so the act won’t necessarily help the problem unless all ends of the process are working at the same 24/7 rate. The warehouses at these ports aren’t empty either, just like the bays the ships are waiting in, the warehouses are full of packages. However, the pandemic did nothing but speed up the steady decline of truck drivers, so once items get to the port the shortage of workers is keeping the items from moving farther.

The final quarter of the year always hits a high on consumerism because of the holidays. While it’s already a stressful time for companies, the problems within the supply chain have made the months leading up to it even more frantic. There are only certain months out of the year where one can sell Christmas decorations, and it’s looking like many companies have a large supply of those stuck on boats waiting in the Los Angeles or Savannah ports and those companies will lose a lot of money. They will either have to figure out how to store these items until next year or sell them at discounted prices.

Larger companies are finding ways around the stoppage though, as Home Depot chartered their own ship to pick up their supplies. This works because the chartered ships are significantly smaller, which allows them to pick up the containers and dock in a smaller port that the large cargo ships can’t. However, this is much more expensive, and smaller companies don’t have the money to spend on privately chartered ships. Small companies will not be able to get their full shipments and will also have to increase prices on the items they do have since their supplies will be so low.

While some are hopeful that the supply chain issues will clear up in the coming months, it will likely take much longer to rectify such a large-scale, global problem. Each step in the manufacturing and supply process will need to be reworked to get the whole process running smoothly again, which could take years.

Post Author: Callie Hummel