Supply Chain Issues: Why Supply? Issues That Is!
We’ve all seen the videos of cargo ships off the coast of California. They are teasing us saying, “Hey dude I got your appliances right here.” There is a part of me that wants to swim out there, rent a little boat and just load it myself. Sadly, this is not allowed. Probably, everyone reading this has dealt with the massive global supply chain shortage. I recently got my new oven I ordered in February (after 8 months), and am currently driving a loaner car as my regular service needed apart from overseas (and that was 2 weeks ago).
What makes all this work is:
A. There is no end in sight, and
B. No estimations of when your products will arrive.
This can be so infuriating for us consumers. That said it is equally, if not more, frustrating for the stores and suppliers. They are dealing with sales they can’t fulfill and customers that are angry. It is the definition of a cluster(you know what).
Why are we having supply chain issues?
The question at hand is how did we even get here? I’m so glad you asked.
- The first, and kinda obvious issue, has been Covid-19. This caused manufacturers around the globe to simply shut-down for months on end. The trickle-down effect from this was enormous. Even when these warehouses opened up, they weren’t functioning at full capacity due to Covid protocols. Short answer, supply was way down.
- The second glaring issue is the other half of our Econ 101 course. Not only was supply way down due to shutdowns, but demand went soaring up. While we were all stuck home for a year, still can’t believe I am uttering those words, we kept spending. As a matter-of-fact we didn’t just keep spending, but the demand in the US increased so much it was equivalent to 50 million new people joining the economy! Holy Toledo Batman! This led to the perfect storm of increase in demand and a decrease in supply. For those far removed from their formative college years this is No Bueno.
- The third massive issue has been a decrease in the supply chain capability. There are less workers, equipment, and storage than the demand requires. I recently read there is a 30% increase in the amount of goods going through our ports with 28% less workers. There are nearly 600,000 job openings in our country for warehouse and trucking jobs. Why is this you may wonder? Few key happenings:
- Due to Covid a lot of people simply retired.
- With so many job openings everywhere a lot of manual laborers moved up to less physical work.
- Lot of people quit due to unworkable situation and work load.
- Lots of people quit due to vaccination mandates.
- And I know you were waiting for this one, but a lot of people are making more money on our accommodative unemployment policies they are dis-incentivized to work.
- Mo-Money Mo-Problems. During this pandemic the Federal Reserve made interest rates and lending very attractive. What ensued was an unexpected increase in people’s ability to have cash on hand and to access cheap funds for things like car purchases. This again led to this ridiculous increase in demand.
- Toilet paper. Huh? You know how everyone tried to get as much toilet paper as possible? So much so I’m stuck using the worst one-ply toilet paper as it was the only thing we could find at one point (fyi one-ply should be illegal). My point here is that suppliers did the same thing. They would order an abundance of goods for their stores, much greater than their current demand. This lead to, what was already a backlog, even further behind as manufacturers were filling phantom orders.
- Last point for us all is a special shoutout to chip manufacturers like Taiwan Semiconductor. A final issue in the world of issues. Many products these days require semiconductor chips, like the cars we drive. Well, to compound things when demand went soaring so much of it fell on very few companies who dominate this chip marketplace. There are currently 10’s of thousands of F-150’s that are completely finished and ready to go. Too bad they are missing the key ingredient, microchips! So think this through for a second. Demand is soaring, manufacturers are clawing to keep up, not enough workers or storage, and even when they get the product built, they are now waiting on chips to be manufactured. Yuck!
There are two things to keep an eye on here. One is back to our scholastic years. Supply=Demand. Or in other words costs of goods are going up. This is why Social Security raised their COLA for next year an astonishing 5.9%. Fun fact – before the pandemic it cost around $1,400-$2,000 to ship a container from China to the US. Any guesses what it costs now? $20,000-$25,000 and you can certainly be sure we the consumers will bear the brunt of those costs.
The second thing on everyone’s mind to keep an eye on is when will things normalize? I am certainly no expert in this area, but from everything I am reading or people much smarter than I say, they are suggesting late 2022 or even 2023. So, buckle up folks things are not getting better any time soon.
If thinking about a house remodel or getting a new appliance – either order way ahead of time, think about delaying if you can, or get ready for one hell of a ride.
Thanks for reading and stay wealthy, healthy, and happy.
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