Where is our stuff?
As the global economic recovery continues to gather steam, supply-chain disruptions are now showing up at every corner. These world supply chains are under extreme stress. There is a shortage of computer chips; ports and rail yards are clogged and truck drivers are overworked and overwhelmed.
This supply chain nightmare is jacking up prices for consumers and slowing the global economic recovery and there is a great possibility that these disruptions will get worse before they get better.
Border controls and mobility restrictions, unavailability of a global vaccine pass and pent-up demand from being stuck at home have combined for a perfect storm where global production will be hampered because deliveries are not made in time. Costs and prices will rise and GDP growth worldwide will not be as robust as a result. The price of containers has skyrocketed and can be more than 10 times higher than it was just two years ago. In short, a lot of international trade has slowed considerably, plus some of it is no longer profitable.
The weakest link may be the shortage of truck drivers — an issue that has contributed to congestion at ports and caused gas stations in the United Kingdom to run dry. Other sectors are in desperate need for workers as well. Costco, Starbucks and others have raised their wages to attract new employees.
There are several factors that make overcoming these issues particularly challenging. There are differences in how countries are fighting Covid, with China aiming for zero cases while the United States is more willing to live with Covid-19 as an endemic disease.
That makes it tough to harmonize the rules and regulations by which transport workers move in and out of ports and hubs around the world. Additionally we have areas with a current energy crisis. Many countries have sought to move to greener energy supplies, but without first having sufficient alternatives in place. Japan and Germany decided to abandon their previous nuclear power commitments. Recently China has seen power shortages, caused by higher demand from re-opened factories and new imposed coal production limits. That caused the price of coal to triple.
A further problem area is high-quality computer chips. The global economy was already far too dependent upon two countries for supply — Taiwan and South Korea. Then three things happened: Chip factories closed during lockdowns, a series of unlucky natural disasters hurt chip supply, and chip demand surged with increased consumer demand for durable goods such as cars and appliances. At current margins, automobile production is seriously constrained by available chip supply, which is one reason new and used car prices remain so high.
All this has fueled price inflation across all goods and services. The demand is hitting the market, and the supply can’t catch up. And it’s not just one problem that has an easy, direct fix, but rather a series of interlocking paths of economic chaos and delay.
Personally, I think that these supply chain hiccups will fade quickly and this will be much less of an issue next year. I think we are currently experiencing the worst part of it and market systems will adjust for it. Inflation however will continue and we most likely will see more price increases between now and Christmas, including in the grocery stores.
