With the devastation at ports showing no signs of abating and the prices of large quantities of goods still rising, the world is realizing a troubling realization: Only time will solve it. Massive supply chain disruption.
It will require investment, technology and a retooling of incentives in global business. More ships will be needed, additional warehouse and a bunch of truckers, none of whom can be suggested quickly or cheaply. Months, and perhaps years, may pass before the chaos subsides.
“That’s unlikely to happen in 2022,” said Phil Levy, chief economist at Flexport, a freight forwarding company based in San Francisco. u.”
For global supply chain watchers, the very notion of a return to normality has given way to the reluctant acceptance that a new normal may be on the way.
Cheap and reliable shipping may no longer be valued, forcing manufacturers to move production closer to customers. After many decades lean repository dependency and online systems that monitor inventory and recall goods as needed – a boon for shareholders – manufacturers can return to a more cautious focus on adding capacity.
The insight that the supply chain crisis persists in power poses a daunting challenge for policymakers.
Mayhem at factories, ports and shipping yard, combined with the market dominance of large companies, was the main driver of the price increase. Amazed by the highest rate of inflationary For decades, the Federal Reserve has decided to tighten credit, while Bank of England and other central banks raised interest rates, sowing alarm on the stock market from New York to Tokyo.
Public anger over rising consumer prices – especially for food and fuel – helps explain why Democrats may be in danger lost control of Congress.
Understanding the supply chain crisis
But whatever politicians and central bankers unleash in the name of curbing inflation, businesses continue to struggle to produce and distribute their products.
Whirlpool recently warned that customers purchasing the company’s washing machines, refrigerators and other home appliances will continue to experience delays as the company runs into supply chain issues.
Even like Tesla which last week posted record profits amid so much demand for its electric cars, the company said sales will be hit by supply chain difficulties – particularly due to the lack of constant lack of computer chips.
The chip shortage has worldwide car production restrictions, while the stylists of medical devices and a variety of electronic gadgets. The US Secretary of Commerce, Gina M. Raimondo, recently described persistent chip shortages as one The “alarming” threat to US industry.
The International Monetary Fund last week cited supply chain troubles among other factors as it downgraded global economic growth forecast for 2022 from 4.9% to 4.4%.
The breadth and persistence of supply chain troubles is partly due to the coronavirus pandemic fueling trends that have been around for decades, particularly the rise of e-commerce.
While big brands typically ship goods from factories around the world to central warehouses that supply retail stores, e-commerce requires a much more complex endeavor: Vendors Retailers must deliver individual orders to homes and businesses.
As warehouses were already filled with merchandise, major retailers added capacity at breakneck speed. According to Reonomy, a commercial real estate data provider, Amazon spent more than $164 million building new warehouse space last year, while Lowe’s, a home improvement retailer, spent more than 17 million dollars.
Warehouses are piled up at hubs where the need is highest – those closest to the biggest urban areas.
As of the end of last year, warehouses in the Inland Empire, Southern California area had vacancy rates below 1%, according to CBRE Group, a commercial real estate investment and services company. Those in northern New Jersey have a vacancy rate of just 2.4%.
“The underlying physics of land scarcity is quite important,” said Chris Caton, managing director of global strategy and analysis at Prologis, a warehouse-focused real estate investment trust. important. “If you look at Southern California, you look at the larger New York-New Jersey area, it’s just that there’s no land left in the most sought-after locations.”
The narrowness of the warehouses helps explain why US ports are still occupied by the turmoil, especially the busiest, the terminal complex in Los Angeles and Long Beach. With limited space to store cargo loaded from incoming ships, the containers were piled up on the docks without being collected. That has prompted port supervisors to force the ships to stay at sea for days or even weeks before they can unload.
Over the past three months, container ships handling cargo have stayed in U.S. ports for an average of seven days, up 4% from all of 2021 and 21% more than at the start of the pandemic, according to FourKites, a supply chain. Chicago-based consulting firm.
As ports operate at full capacity, they are facing structural problems – aging and overcrowded infrastructure, lack of chassis used to transport containers with trucks and not enough drivers, even even when trucking companies raise wages.
Shipping companies are struggling because outdated technology has limited their ability to predict and plan for problems.
“These are systemic issues in the supply chain, this has been building up over the years,” said Steve Dowse, Senior Vice President and General Manager, International Solutions, FourKites. “The pandemic has really only highlighted the fragility of our supply chain.”
Even as companies face supply chain volatility, the cost and complexity of dealing with their troubles can prevent executives from taking effective actions.
How is the supply chain crisis unfolding?
The pandemic has sparked the problem. Complex and interconnected global supply chains are in flux. Much of the crisis can stemming from the outbreak of Covid-19, causing an economic downturn, mass layoffs, and production shutdowns. Here’s what happened next:
In a recent survey of the more than 3,000 executives conducted by consulting firm Alix Partners, less than half said they were taking long-term actions to ease supply chain challenges, while a majority said they are relying on short-term measures. Regardless of their approach, more than three-quarters of executives were skeptical that their plan would work.
Supply chain problems persist despite many saying they will prove a largely temporal phenomenon caused by the pandemic.
During the first months of the spread of Covid-19 – as markets plunged and American businesses laid off workers – manufacturers cut orders for a large amount of goods on the assumption that Health concerns, lockdowns and falling wages will limit demand for their products.
Using the same logic, computer chip manufacturers cut output. Global shipping companies reduce service.
That incident has proven to be fatally wrong.
The pandemic has not eliminated so much spending but changed it around. People stopped going to restaurants, sporting events and amusement parks, while transferring their money to furnish their homes in lockdown. They added a treadmill to their basement, a desk and chair in their bedroom office, and a video game console to their living room.
Many of these goods are made in China. And the increase in demand destroyed the availability of Container shipping at ports in Asia, delaying shipping.
When the ship docked from Los Angeles to Savannah, Ga., they carried more cargo than dock workers and truck drivers could handle. The piles of uncollected containers piled up like a monument to globalization has disappeared.
Shipping companies have expanded their fleets, but the impact has been eliminated due to the number of ships leaving the port.
“A stowaway ship is not a ship that is moving stuff back and forth across the ocean,” said Levy, chief economist at Flexport. “It’s a floating warehouse.”
Many economists think that after a few months, Americans will dry out of demand for the product, allowing the supply chain to catch up. As vaccines enter the bloodstream and the pandemic spreads to many parts of the world, it is thought that consumers will stop buying stand mixers and return to restaurants.
This shift has yet to happen in a meaningful way – a seemingly testament to the economic impact of Covid-19 variants such as Delta and Omicron, sending many people back into social isolation.
The greatest uncertainty focuses on what happens next.
Once a household spends several thousand dollars equipping a basement gym, their occupants may not return to their old gym once the pandemic is over. Instead of shelling out for a gym membership, they may choose to invest in additional equipment at home, adding more weights, or an elliptical machine.
As white-collar professionals begin their third year in their home offices, attending video conferences in sweatpants, how many will have a chance to wear business attire again? And what does that mean for retailers that sell such clothing?
These are merely some of the variables at play as businesses try to look to the future. Scarcity of information can certainly hinder investments – in trucking, shipping, in warehousing, in technology – that can ease supply chain volatility.
“All these puzzles are really, really hard,” Mr. Levy said. “Everybody is wary of getting caught.”
https://www.nytimes.com/2022/02/01/business/supply-chain-disruption.html An ordinary supply chain? It’s ‘Unlikely’ by 2022.