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What is causing global supply chain issues? A simple guide

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6 mins

Have you been looking for a new car? You’ve probably noticed the dealerships’ inventories in your area are looking a bit sparse. And that’s not all.

Computer chips, exercise equipment, laptops, your favorite breakfast cereal... it seems like the shelves in our favorite grocery and retail stores are half-empty, or they’re full of items that aren’t in high demand.

And it’s tough on Americans. We want what we want now, not later. When we click on the “buy” button today, we expect whatever we’ve ordered to be delivered tomorrow, or certainly within a few days to a week — no more than that.

Unfortunately, it appears there’s no end in sight. It started with the shock of searching high and low for toilet paper. Now we’re waiting months for a new mattress, compromising on the color of our new cars (if we can find the model we want), and steaming and fretting as we wait for our flight that is being delayed while crews wait for food deliveries.

No doubt you’ve read about the broken global supply chain, and you probably still have a few questions, like when it’s going to get fixed. Let’s examine and answer that question, along with a few more others you want (and need) answered.

Why are there supply chain issues?

Great question. There are multiple causes, and they stem back to the pandemic.

Disruptions first started to become apparent during the early months of COVID. Factories in global hubs were hit hard by the first surges of the coronavirus, places like China, Taiwan, and South Korea, as well as Southeast Asian nations like Vietnam and European industrial giants like Germany. They had to either shut down or dramatically reduce production as workers stayed home because they were either sick or in lockdown.

As a result, shipping companies pared back their schedules in anticipation of a serious drop in demand for moving goods around the world.

That turned out to be a big mistake.

Indeed, people were shuttered in place, and the demand for things, like meals at restaurants, cruises, and spa services cratered. But that didn’t mean Americans stopped spending.

We took that money earmarked for fun and spent it on goods for our homes, like new office chairs and printers for our new home offices, gym equipment and gaming consoles for our basements, and blenders and mixers in the kitchen since we were now eating almost exclusively at home. Lumber and paint for projects that made our homes more comfortable places to seek refuge began flying off the shelves.

This led to an overloaded system. Factories with workers already in short supply were swamped with new orders and couldn’t keep up. Their hands were tied, and our fists were clenched as we watched and waited for the supply chain to kick back into gear.

[ Related: 5 fortunate industries with the most pandemic-proof businesses ]

Why can't factories just produce more?

Many tried, and some succeeded, but that only led to a cascade of problems besides labor shortage.

The manufacturing process involves factories importing components to make things they export. For example, that sleek new phone or flat-screen television you want that’s assembled in China may require a chip made in Malaysia or Taiwan. That chip may be the only component missing in the manufacturing process, but the assembly line comes to a grinding halt without it.

The global supply chain woes have also affected nonprofits and aid groups. It’s made it more difficult for those organizations to acquire excess inventory from for-profit companies that have their own headaches from supply chain issues.

What happened to all the giant container ships?

To put it simply, they got stuck in the wrong place at the wrong time. The ships were loaded down with finished products that had piled up in warehouses and at ports throughout Asia because of a massive shortage of shipping containers, the steel boxes that house the goods that everyone was waiting for.

As a result, the price of moving cargo skyrocketed. For example, pre-pandemic, it cost a company $2,000 to send a container from Shanghai to Los Angeles, but by early 2021, the cost of the same journey now had a price tag of $25,000.

Exacerbating that problem was a shortage of labor. As the heavy influx of cargo ships started arriving, docks became overwhelmed as scores of warehouse workers and dockers were stuck in quarantine, bringing the unloading of goods to a crawl. As a result, ports like Los Angeles, Long Beach, and Oakland became home to dozens of ships that were all dressed up with no place to go.

Much of the finger-pointing has been directed at the massive cargo ship named the Ever Given that ran aground early in 2021 in the Suez Canal and log-jammed the shipping industry for six days.

Where do transportation problems fit in?

The American Trucking Association bemoans the fact that there is a “historic high” shortage of 80,000 truck drivers, and they’re not all down with COVID. The Teamsters say that long hours, stagnant pay, high stress, and health issues have driven drivers and job-seekers away.

Making matters worse, the workforce of big freight rail carriers who move goods across the continent was whittled down, resulting in the number of key workers on Class I freight rails falling from 170,000 in 2017 to 135,000 I'm 2020. This was happening while rail freight was increasing by 40 percent in weight and 35 percent in dollar value.

[ Related: The Great Resignation of 2021 ]

When will the supply chain issues end?

No one knows for sure, but there are good reasons to count on it to continue well into 2022 and perhaps longer. Delays and shortages are affecting holiday shopping by making it more difficult to find some highly sought-after gifts. Many companies not only placed huge orders, but they also ordered earlier in the year, which only compounded the shortages, sending even more surges of goods toward already overtaxed ports and warehouses.

As hard as it is, we all need to exercise patience during what has turned into a very trying time and not hoard goods when their supply increases. The global supply chain debacle is a first-world problem; not having the latest iPhone is something we can live with.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published December 13, 2021
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