Supply Chain Catastrophe

By Samantha Bader, Co-President

The long reaching consequences of the COVID-19 pandemic continue to make their presence known. The global supply chain is the latest domino to fall. Without a plan to stop the spiral, this may quickly turn into an unmitigated disaster as the world economy tries desperately to return to normal. 

After almost two full years of economic downturn due to COVID-19, people are spending money again. However, the global supply chain responsible for moving all these goods around the world is struggling to keep pace with the demand. Ports are congested, there is a shortage of truck drivers, and empty shipping containers are floating around in the ocean. Consumers are already feeling the effects of this – prices are rising, shipping times are delayed and major companies are reducing their production levels. 

Apple is now forecasting that they will have to cut production of their new iPhone 13 as their computer chip suppliers have been struggling to fufill their orders. These delays are hitting many industries, from cars to canned goods. The White House has gone as far as warning consumers that there will be things consumers are unable to purchase this holiday season. 

“As the global economic recovery continues to gather steam, what is increasingly apparent is how it will be stymied by supply-chain disruptions that are now showing up at every corner,” Moody’s Analytics says

For companies, shipping prices have skyrocketed. The price of a standard shipping container is now around $6000, which is over two times the cost compared to the price in 2016. Containers are also stuck in ports, as different countries still have widely different COVID-19 regulations, with some ports still requiring quarantine periods. 

However, analysts say that the most dire symptom is the lack of truck drivers to move goods within countries once they arrive. Recruting firms say that 1 in every 9 postings for a driver is filled, and few independent contractors are entering this space as operation costs for vehicles are high. This is leading to goods sitting at ports, with no movement and progress being made, further backlogging international shipping. 

This all seemingly signals bad news. The International Monetary Fund officially downgraded their 2021 economic outlook for the United States in October by a full percentage point. That is the biggest drop for any country that belongs to the G7. Not only will these delays hamper production, but they may lead to a substantially lower level of consumer purchasing. Furthermore, if inflation shoots upwards, people will no longer be able to make buying decisions that they would have otherwise.

Some other analysts are more hopeful. The CEO of JP Morgan Chase, Jamie Dimon is one such analyst. He said, “This will not be an issue next year at all. This is the worst part of it. I think great market systems will adjust for it like companies have.”

The world should be hoping that Dimon is right. Should the supply chain that stretches from Asia to North America and back again not recover, it will lead to prolonged economic suffering at a time when the world needs it least.

Photo by Cameron Venti on Unsplash

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