“Why do I have to wait?” Supply Chain Disruption Gets Its Day – News Couple
LOGISTICS

“Why do I have to wait?” Supply Chain Disruption Gets Its Day


The supply chain is once again front page news in the general business media. Meanwhile, supply shortages and price inflation take front page in consumer-focused publications and plenty of airtime on televised news. And he is right. Many consumers, myself included, are upset by the sight of empty store shelves where our favorite consumer goods are usually stored. Many people wonder why this is still happening. I think there are many reasons for current supply shortages and supply chain disruptions. After all, shortages and upheavals were continuous over time and scattered across geographies and the elements.

Additional order (think sanitary napkins) does not pass the smell test

In the spring of 2020, there was a huge shortage of cleaning and disposable products like sanitary napkins, peryl, and toilet paper. Last year’s shortage was attributed to a sudden rise in demand for some items, along with a change in demand locations (toilet paper for homes rather than schools) which was later exacerbated by hoarding. This is logical. Then there was a shortage of building materials caused by a lack of upstream production. That was logical, too. But at present, simple excess demand or even isolated underproduction does not seem to pass the odor test of cause and effect. Things are different because deficiency is more prevalent. The economy is certainly gaining ground and stimulating demand. COVID-19 restrictions remain in place in some cases. But most importantly, the increase in demand occurs after a significant downturn. I think this is an important factor that is being overlooked. The economy is recovering after the severe contraction in employment, productivity and inventory that occurred at the height of the pandemic. This period was a shock to the economy, broadly affecting supply chains…and supply chains.

Inventory, Efficiency and Extended Supply Chain

Supply chains have become incredibly lean over the past two decades. High inventory turnover and lower inventory moving costs have been an operational goal for the company that is enabled by efficient supply chains. But the US ratio of total business inventories to sales is hovering at a 25-year low. This shows that overall stocks are particularly low across the economy. In my opinion, this extremely low level of inventory is the result of demand exceeding supply. After all, this total figure hides the numerous examples of goods that are completely out of stock and cause losses in sales to merchants. Regardless, the ratio of total business inventories to the economy shows at a high level what we already know as consumers – there doesn’t seem to be much surplus inventory available. Moreover, this is the case not only with retailers but also with wholesalers and manufacturers. So it extends back up the supply chain. Moreover, there are certain items that are chronically unavailable – such as new cars. Demands for cars have been piling up due to disruptions to manufacturing supplies, most notably computer chips for vehicles.

Source: Descartes Datamin

Shortages in the primary supply chain do not directly affect the availability of consumer goods. These effects may take some time to materialize in your retail inventory statistics. After all, today’s supply chains are complex, multinational (think shipping distance), and require input from many organizations across geographies, which are glued together by a complex network of logistics providers. Import and export activity is an important measure of economic activity. Although the US government provides statistics on import and export activity, I find container shipping activity to be a better measure of shipping impacting the everyday consumer (it reduces the impact of bulk goods). According to Descartes Datamyne (see Surviving Peak Season), US imports increased twenty-foot equivalents (TEUs) above the 2.2 million-month threshold last summer, and have been above that limit (except for February 2021) since then. This indicates a sustained increase in merchandise imports above previous levels. It may also represent an increased dependence on merchandise imports.

However, despite the high volume of imports, there are indications of capacity constraints preventing volumes from reaching the level of demand. The Marine Exchange of Southern California reported on its Twitter page MXSOCAL that the ship reported a number of records at the Port of Los Angeles/Long Beach. For example, on September 24, there was a new record for a total of 157 ships in port. Of the 157, 95 were container ships including 62 at anchor or in drifting areas. This indicates that LA/LB is fully operational and that the West Coast in general is likely to be a bottleneck in import capacity. Much of this retail may be in the holiday season, but it is possible that some of them are intermediate goods that may cause delays downstream in the future.

last word

So what should be done in this environment of supply chain disruption and shortages? Well, companies can try to secure additional capacity, even as Costco has done. But securing capacity could potentially lead to higher rates of rise and thus. Trucking costs are also increasing dramatically. The Cass Shipping Expense Index showed a 42 percent year-over-year growth in August (from a mix of rates and volumes). Ultimately, as a consumer, I think I will try to accept that comfort will deteriorate, and I will have to wait for some goods. Or I can pay extra to speed it up and contribute to inflation. I guess I’ll let my patience and my money compete on a case-by-case basis.



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