Port of Shanghai – Photo: Getty Images/loveguli
Some think supply chain disruptions are here to stay until 2022
The supply chain turbulence that arrived last fall was predicted by many to be a temporary event, but it’s now expected to delay upcoming holiday shipments and may linger into next year.
The National Retail Federation’s (NRF) monthly “Global Port Tracker” report predicted imports at the nation’s largest container ports would hit yet another record in August.
“Strong consumer demand has outpaced supply chain operations since late last year and could remain a challenge as the holidays approach,” said NRF VP for supply chain and customs policy Jonathan Gold, last week in a statement. “The continuing lack of labor, equipment and capacity has highlighted systemic issues and the need to create a truly 21st century supply chain to ensure resiliency against the next major disruption.”
The shipment delays were initially blamed on the global supply chain’s struggles to catch up to the resurgence in demand for consumer goods after production initially shut down with the pandemic’s emergence.
In the U.S., resultant bottlenecks have led to recent costly delays of up to five days for ships waiting to unload at critical West Coast ports, stranding thousands of containers. The congestion has exhausted warehouse space and affected the trade-offs to trains and trucks. Shortages of longshoreman, truck drivers and warehouse workers have also slowed the flow of goods.
Other recent factors exacerbating the delays include the Suez Canal blockage, COVID-19 outbreaks at shipping hubs in Southern China as well as factories in Vietnam and Bangladesh, and floods in Western Europe and China’s Henan province.
Retailers are believed to be ordering weeks ahead of time to ensure holiday delivery, but escalating transportation, freight and commodity prices are driving inflationary pressures.
On its second-quarter conference call last week, Steve Cahillane, CEO of Kellogg, admitted it’s hard to know how long the supply chain challenges will persist.
“It’s very pervasive,” said Mr. Cahillane. “There are certain things that are clearly going to unwind. Containers will eventually find their rightful places in the world, labor shortages should mitigate, but it’s hard to predict. And we’re planning for an ongoing challenging cost environment well into next year.”
- Retail Cargo Expected to Set Record in August as Merchants Move from Back-to-School to Holiday Preparations – National Retail Federation
- Where Did All the Shipping Containers Go? – The Wall Street Journal
- Warning: Book now or ‘Christmas may be canceled’ – Freight Waves
- Port Chief Sees U.S. Import Surge ‘Easily’ Lasting Into 2022 – Bloomberg
- Another shipping crisis strikes, threatening delays to Black Friday shopping – CNBC
- Cargo Congestion at West Coast Ports Driven By Cumulative Collapse of Entire Logistics Supply Chain, New Research Finds – Pacific Maritime Association
- Kellogg Company (K) Q2 2021 Earnings Call Transcript – The Motley Fool
- How can retailers best navigate supply chain turbulence? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you see supply chain obstacles threatening the holiday selling season and potentially lasting into 2022? What related issues do you see as easier versus harder to resolve?
Poll
Loading …BrainTrust
Richard J. George, Ph.D.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
Ron Margulis
Managing Director, RAM Communications
Given the current state of supply chains and the growing concerns with COVID-19, we will likely see continued supply chain issues well into 2022. One of the biggest obstacles in the U.S. is the shortage of labor for truck drivers and warehouse staff. Companies are offering lucrative incentives to attract more personnel and there are still staff shortages.
The supply change problems are due, in part, to the changing habits of consumers over the past 18 months. The COVID-19 disruption also disrupted the data of trends, inventory and more. It became unpredictable and, as a result, forecasting became difficult. Eventually, we’ll spot the trends (if we haven’t already), and help smooth out supply chain issues.
At least in the CE and home appliance industry, the supply chain issue will last long into 2021. Currently, CE retailers here in Europe have trouble filling their shelves and foresee their assortment availability worsening for the big season in Q4.
Supply chain disruption isn’t going away anytime soon just as the pandemic is hanging on. Hoarding and COVID-19 induced buying patterns will remain with us for the foreseeable future. Just like our grandparents and great grandparents modified their behavior based upon the Great Depression so too will this disruptor have a similar behavioral impact. The just-in-time supply chain model needs to be rethought as it doesn’t work as planned in a disrupted economy. It takes too long to add manufacturing capacity to match this unpredictable demand.
While we are wondering if the supply chain disruptions will stretch into 2022, we are seeing disruption in the rubber industry unfold. A significant portion of rubber supply comes from Southeast Asia and they are currently plagued with serious leaf diseases. The largest consumer of rubber is the automobile industry and their largest demand is currently coming in from e-commerce and the last-mile delivery boom. If that were to get impacted 2022 will look like an optimistic scenario.
The issue with supply is that there are multiple issues with supply and these are combining to create pressures. We have elevated demand which naturally puts pressure on the system. We have factories going down because of the virus in manufacturing hubs like Vietnam. We have bottlenecks in ports. Containers in the wrong places. Labor shortages in trucking. A lack of warehouse space. And so the list goes on. The system won’t collapse, and we will get through it, but our reliance on just-in-time ways of working means that there will be ongoing disruption for a while as the whole system rebalances and corrects itself.
Supply chain challenges will persist well into 2022. The smoothing effect alone of inventory will be highly variable, if not spiky, for many months and this will certainly affect the holiday selling/buying season in a variety of ways from on-hand availability to overall customer experience. I’m seeing this with many of our clients. The companies who have invested in robust data and analytics platforms and fostered a data-driven operational culture will fare much better than those who have decided to take a pass and believe their less mature analytical approaches will be “good enough” to wait out the storm.
I just read that the Port of Ningbo, China’s second biggest and the world’s third largest, is closed due to a COVID-19 outbreak. These incidents are bound to recur frequently and when added to other issues like tariffs (remember those?) and labor shortages which will continue to negatively impact global trade.
On the logistics side specifically, the hardest thing to fix is the shortage of labor, especially truck drivers. Rail may be able to alleviate some of the problem but not even close to all of it. There are no supply chain issues that are easy fix.
Yes, enduring supply chain obstacles pose a risk to product availability into the new year. We’re seeing real-time proof of the global supply chain’s interdependence. As we increasingly shop online for products from around the world, supply can’t keep up.
Comparatively easier issues are shorter-term disruptions like weather disasters and lockdowns in China, India and Bangladesh which affect Western brands’ supply chains.
Harder, long-term issues are:
The above demand agility and the ability to navigate market volatility.
It’s the most thrilling time in global retail history, yet we’re discovering the cracks preventing supply chain resilience.
Given the evidence it’s hard not to see supply chain challenges across a number of areas, though you can’t simply say “across the board.” Labor aside, as it remains a huge challenge for many, there are numerous categories dealing with supply issues relating to component parts (e.g., chips for cars, group sets for bicycles). Some of these categories need several years to catch up with demand and still, logistics present further headwinds.
Unfortunately, the described scenario represents the perfect storm for supply chain disruptions and the dire predictions for the holiday season seem to make sense. However the shock of this year and need for supply continuity offer opportunities for innovation, simplification, and distribution. A few examples: 1. Reducing the number of SKUs in consumer goods presents an opportunity to simplify and strengthen the supply chain; 2. Retailers should consider diversifying their supply base; 3. All channel members should consider increasing the amount of intermediate inventory or safety stock ahead of the expected surge in demand.
Before the pandemic, I remember hearing about how the carriers had too much capacity; there were too many ships, blank sailings and carriers were struggling to break even. Fast forward post pandemic and the balance of power has shifted. Maybe carriers don’t want to increase capacity at the expense of their own profitability? Add to this “reduced” capacity: existing labor shortages in North America (ex. truck drivers) and labor shortages in countries of origin due to outbreaks, and we have a perfect storm. Until labor levels stabilize, we will continue to see these challenges. Retailers will need to rethink their entire supply chains if they want to reduce these kinds of shortages in the future. This means onshoring of manufacturing and creating a network of manufacturers spread out over multiple countries and multiple continents.
Supply chain bottlenecks will absolutely last into 2022. Every issue causing these obstacles will persist for the foreseeable future, so we can expect manufacturing and distribution delays to be longer-term than originally anticipated. This is exactly why demand forecasting models need to become inclusive of far more variables. Consumers’ expectations are not lessening as far as how and when brands deliver, so retailers will have to figure out long-term, effective workarounds for these issues.
Today, we witness container shortages worsened by trade flow imbalance, including continued COVID-19 impact restricting factory outputs in parts of Asia. Chip shortages are reverberating through many non-apparel categories, and companies shifting from buying “just in time” to “just in case.” The industry needs better visibility and tools to identify, anticipate, and mitigate the next set of supply chain disruptions.
Expect supply chain bottlenecks to exacerbate the availability of finished goods and drive up consumer prices going into the holiday period. I don’t see a return to more predictable and stable supply chain flows until 2023.