Domestic Affairs, Saurabh Kumar
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The Perfect Storm: Breaking Down the Supply Chain Meltdown and What’s Being Done About It

Image courtesy of pxfuel

By Saurabh Kumar

Attempting to emerge from the hardships caused by the novel coronavirus pandemic, nations across the globe have encountered one hurdle after another, preventing a seamless reopening. Now, with the holidays quickly approaching, supply chain issues are giving consumers, businesses, and politicians a host of new challenges. While concerns about the pandemic’s effects have fallen notably, according to a survey of economists conducted by The Wall Street Journal, they have been replaced by concerns surrounding supply chain bottlenecks with around half of respondents calling them the “biggest threat to growth in the next 12 to 18 months.”

But what is causing these bottlenecks? There are a number of factors that have come together to cause what Michael Moran of Daiwa Capital Markets America called “a perfect storm” in an interview with WSJ. 

One issue is that the pandemic continues to affect different parts of the world in different ways due to variations in vaccine availability, pandemic restrictions, and more. While most Western economies have largely emerged from lockdowns and workplaces are beginning to welcome employees back, many nations that are pivotal in sourcing raw materials and components are still feeling the adverse effects of Covid-19.

As people were forced to turn their homes into offices, classrooms, and gyms in the early months of the pandemic, trying to find ways to do everyday activities in spite of widespread shutdowns and government mandates to stay indoors, demand for consumer goods skyrocketed, putting pressure on an already-struggling framework. 

In an interview with The Economics Review, Kip Walk, Founder and CEO of Sustainable Path Consulting—a consultancy centered around sustainable supply chain solutions and powered by Walk’s long history in the Cocoa industry— said, “Domestically, we were seeing issues even prior to the pandemic, primarily around trucking.”

Walk also added that he thought sickness and other pandemic-related complications were limiting the ability of port workers and other logistics professionals to work as efficiently as they had been before the onset of the pandemic. 

Having to find alternative ways to do almost everything from getting a haircut to buying groceries, sustained high levels of demand left manufacturers and suppliers with a slew of logistical issues that needed to be overcome in order to capture the money that consumers were redirecting from services and experiences into household goods. 

Now, the effects of this supply chain meltdown are reaching consumers, and legislators are feeling the pressure to act. Strong rhetoric from the right tying the policy goals of the Biden Administration to the supply chain meltdown paints an evil image of a Grinch-like President, ruining Christmas with spending bills that would only exacerbate inflation. 

The White House has fired back, however, saying the spending in the administration’s agenda would provide long-term investments in education, health care, and the environment that would ultimately increase productivity and resilience, fending off inflation. 

Additionally, while the White House has pointed to ports in Long Beach and Los Angeles shifting to 24/7 operations as a move that will begin helping ease bottlenecks, Walk suggested that the concentration of the goods flowing through major ports such as Long Beach and others along the East Coast could have been a contributing factor to the difficulties facing the supply chain framework.

“When something happens, there is not necessarily the infrastructure to easily go elsewhere,” said Walk, saying major ports were almost too big to fail. “When you have a major issue that is certainly impacting one of those major hubs, there’s not an easy solution to work through that.”

According to an article in The Wall Street Journal, President Biden went so far as to say he would consider deploying the help of the National Guard, should the administration find no other solutions. 

“I’m sure that the involvement of external forces like the military or National Guard would be a benefit, but some of it may come down to the question of the whole discussions around infrastructure, too,” said Walk. According to him, enlisting the aid of forces like the National Guard could be helpful if the issue was mostly that cargo was arriving at ports with no way to move it, but the effectiveness of such aid may not be as effective if the amount of cargo arriving was above the normal amount. The latter seems to be more like what we are currently experiencing. 

“I do think there’s going to be constraints on availability,” said Walk about what consumers should expect heading into the holiday season, adding that all sectors may not be impacted. “Because of demand, cost of freight has gone up,” continued Walk, saying “That results in the consumer paying more. Companies are not going to be able to absorb that easily.”

These predictions seem to be holding true so far. Inflation is on the rise, and prices for basic items and commodities such as gasoline are limiting peoples’ buying power. The result is a low consumer confidence index that casts a dark shadow on the future and resilience of the domestic economy.

Ultimately, government officials and politicians have limited tools when it comes to situations like this. Almost 60 percent of economists who partook in the WSJ survey predicted the Federal Reserve would raise interest rates by the end of next year in an effort to keep inflation under control, with some saying they could see it happening even earlier.

Walk also warns that panic buying—similar to the type seen during the beginning of the pandemic—may ensue again as fear sets in about more widespread shortages. Such consumer behavior would only make matters worse, however, as it would result in yet another surge in demand that would put additional pressure on exhausted infrastructure.

“This is not something you plan for,” said Walk, adding that businesses and consumers should expect some short-term pain, but that working on infrastructure—especially creating a more robust network of satellite locations to take pressure off of major ports—would be a good place to start remedying the issues. □

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