Holiday Lags, Shortages and Supply Chain Chaos — Explained - RETHINK
Global Perspectives

Holiday Lags, Shortages and Supply Chain Chaos — Explained

Everything you need to know about the state of the global supply chain

Last week, while doing my weekly shopping at Trader Joe’s, I was not able to find the cans of coconut milk I had grown accustomed to picking up over the years.

Without an empty shelf with a tag where they would normally be, I saw no indication that the store had ever even carried the product.

Perplexed, I walked up and down the aisle and asked a clerk where the coconut milk was.

“We’re out-of-stock,” he said. “The cans are still on a cargo ship somewhere off the coast of California.”

And it’s not just coconut milk: the entire supply chain is stretched beyond capacity in the wake of the pandemic—and consumers are going to notice if they haven’t already.

Raw materials are in short supply, shipments are delayed, and businesses are in a frenzy trying to figure out how to stock their goods for the holiday season.

To reduce holiday stress, retailers are encouraging their customers to make purchases well before gift-wrapping starts, but incentivizing consumers to make holiday purchases in October instead of December is a tough sell.

Further, when global consumers spent $900 billion more online in 2020 than in previous years, ramping up demand during any time of the year has exposed the lack of scalability in the supply chain.

Even if we’re not in a situation as dire as the toilet paper shortage of 2020, the supply chains that drive our global economy will get hit with delays until 2022 or 2023 and there are a number of reasons why.

 

Historic supply chain trends are failing

When we think about supply chains, we should think of the factories, shipping companies, and processing centers with locations all around the world.

The companies and industries that run these operations have spent decades calibrating them to maximize efficiency and profit.

Raw materials sent from factory floors to distribution centers and beyond need to stay in motion and there’s no room for error in this system.

The pandemic has led to ripple effects within these operations and since companies rarely stock up on surplus inventories, suppliers are left to handle the fallout.

To better understand why American consumers have grown so accustomed to convenience, we need to understand what the retail industry calls “just in time” manufacturing.

Used by the Japanese in the mid-20th century to build automotive vehicles, this manufacturing model was emulated by companies around the world who wanted to cut down on costs.

Companies could rely on suppliers to source raw materials from locations where the cost of materials and labor was cheaper rather than stocking up on excess inventory.

If nothing fails, this manufacturing model allows American companies to adapt to changing demand, limit the size of their inventories, and keep their prices low—but now we’re seeing disruptions affecting almost every aspect of the system.

Supply chain expert Gary Newbury had this to say about current wait times in the wake of these disruptions:

“Retailers are typically eight to twelve weeks out from placing an order. Getting manufacturers to produce a product, getting it onto a boat, getting it over here, passing it through the port, and then getting it pushed out to distribution centers and into stores. I think that for those things that haven’t been produced yet, don’t even think about them.”

 

Where COVID-safety meets supply chain delays

Unfortunately, there’s no quick-fix solution as factories, processing centers, and shipping companies all have their own COVID-related safety policies in place.

Many companies were optimistic heading into 2021, but the delta variant and lack of vaccines in developing and low-income countries staggered global recovery efforts.

Take Vietnam, who’s America’s second-largest shoe and apparel supplier. Most of the country’s workforce is unvaccinated and the delta variant has forced numerous factories to shut down in the last few months.

To maintain production, their government mandate’s some employees in high-risk regions to eat and sleep in the workplace instead of going home.

Across the Pacific, major retailers like Target and Walmart are chartering private cargo vessels and purchasing shipping containers to meet holiday demand. The shipping industry has undertaken a severe influx of delays which has stalled ports across the West coast.

As stated by Tom Bellerud, chief operations officer of Washington’s Northwest Seaport Alliance, “We are seeing a historic surge of cargo volume coming into our ports… The terminals are having a difficult time keeping up with processing all the cargo off these vessels fast enough.”

The privatized shipping efforts by Target and Walmart are showing degrees of success, but they are still at the mercy of last-mile delivery—which has taken a hit.

The trucking industry is operating at limited capacity due to a driver shortage and the substantial uptick in online shopping has put stress on an ill-prepared parcel network.

Nevertheless, consumers will need to come to grips with long-term delays as retailers assess potential paths forward.

 

The energy crisis has compounded supply chain delays

Outside the US, an energy crisis in mainland China and across Europe has worsened shipping limitations brought on by supply chain stress.

As of last month, more than double the usual number of ships waited outside Chinese ports while authorities called for widespread factory shutdowns as coal supply dropped and prices surged.

Today, more than 60 companies in mainland China have, or are currently facing power-related shutdowns—and that number is expected to grow.

In the UK, a shortage of truck drivers has hampered the delivery of fuel to locations in the South of England. Fuel retailers downplayed the extent of the disruptions, but delayed deliveries are expected to continue for the next 5-6 months should the U.K.’s underlying energy crisis continue.

Further, shipping disruptions in China and heightened fuel costs in Europe will certainly affect consumers in the US if they haven’t already. Gasoline prices have already risen considerably over the last quarter and heating and electric costs could rise this winter.

For retailers, rising energy costs will translate to inflation and a drag on consumer spending.

 

Some expectations must be waitlisted

When major supply chain disruptions occur, there are varying responses from consumers. Of course, less money in the hands of consumers means less purchasing power—and we’re seeing that first-hand in the wake of the energy crisis, but how is the public responding to supply chain delays?

Newbury argues there are three main behaviors he saw most often during the early months of the pandemic.

The first consumer will give his or her trust to the grocers, retailers, and companies they use to deliver no matter how bad headlines are.

The second will panic buy toilet paper, household goods, or anything else they feel they’ll need should they be trapped inside for weeks or months.

The third behavior, and what Newbury argues was the most common in 2020, was replenishing goods more often than usual.

Instead of buying toilet paper at the store every 10 days, consumers advanced their toilet paper purchasing habits to every five days—just in case things got worse.

“I think it was the UK, 3% were panic buyers and 97%, the rest were basically doing what I’ve just described, which is just advancing some of their purchases,” Newbury revealed. “They would naturally buy, but later.”

“So, the cumulative effect of that was absolute shortages all over the place. And if people just kept calm and just had confidence in their grocers, it’s in their interest to get stuff on the shelves.”

Now—whether it’s distribution center employees, shipping employees, or factory employees from around the world, virtually every worker in the supply chain has been pushed beyond capacity over the last 18 months.

Consumers cannot continue to ask these workers to push the limits of speed and productivity when that has already been asked of them numerous times over the course of the pandemic.

“As a consumer, we’ve just got to be confident that our retailers know how to work hard,” Newbury said.

But consumers also need to be able to cut back—even as the holiday season approaches.

While a halt to online shopping seems unlikely, consumers can help manage supply chain expectations by purchasing more goods locally, in-person and early in the holiday season.

If nothing else, avoiding the panic buying frenzy of early 2020 that led to shortages of essential goods should be at the top of our priorities.

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