Article originally posted on UrbanLink Magazine

Title: Broken Links in the Supply Chain

Published Date: April 9th, 2021

Author: Noelle Lovern

To the average consumer, the global supply chain may seem distinctly resilient, but this massive system is quite sensitive and easily affected by changes in routine conditions.  Some disruptions can be anticipated and managed, but others, like acts of nature or a global pandemic, can break established chains and cause serious complications. Supply chain being one of the hardest-hit layers in logistics during 2020 (and now carrying on into 2021), it’s no wonder that nearly every industry has felt the brunt of these stressed and broken links.

Now that manufacturers are ramping up to resume pre-pandemic production, two of the major obstacles they face are a lack of shipping containers to distribute products and a domino effect impacting availability of semiconductors, plastics, and building supplies.

Shipping Container Scarcity

Even during the best of times, any supply chain disruptions can affect international trade and cause a ripple effect in daily business. A major contributor to these disruptions is the transportation system used to receive and transfer goods. Transportation of goods from point A to point B is often reliant on the use of shipping containers which are dead center in the 2021 supply chain crisis.

In the first half of 2020, many manufacturers scaled back production of consumer goods anticipating a slump in sales only to be surprised with a second half surge. When manufacturers reduced their production schedules, shipping container manufacturers followed suit and reduced output of new units. Since the surge in the latter half of 2020, congestion in shipping ports has resulted in extended usage of shipping containers. These delays prevent timely reallocation of empty containers for use in the next shipment.

Picture of a shipping container

Cost of Shipping

Following the basic concepts of supply and demand, the cost of shipping containers, along with the cost to ship loaded containers, has increased substantially. Chinese shipping container manufacturers, which dominate the market, have elevated the price per container from $1600 to $2500 over the past twelve months. The scarcity of shipping containers translates into smaller payloads and less cargo moving through shipping lines. The result has been an 80 percent increase in the cost to ship a container of goods. This year, shipping costs notably increased from $1500 per container to as high as $9000 per container in extreme cases.

 

Disruption Junction

Consumers see the trickle-down effects of shipping container scarcity and rising shipping costs in product pricing and availability.

In the current supply chain crisis, building supplies, semiconductors, and plastics are topping the list of items most impacted by the disruption. Major industries affected include automobile, appliance, infotainment, any manufacturers which rely on semiconductors and plastics, and of course housing – the leading industry driving the economic recovery – which relies on building supplies.

Net-net, disruption of the supply chain means slower economic recovery.

 

Building Supplies

Historically, the construction industry has always contributed to economic recovery. As the demand for homes in many areas across the U.S. surges, new home builds are feeling the effects of the supply chain disruption.

96 percent of contractors have identified scarcity in building materials as an urgent issue resulting in surging prices and widespread delays. With lumber in high demand and supplies running slower than usual, costs to build a new home have risen by an average of $24,000.

 

image of a stack of boards

Plastics

Plastics are instrumental in nearly every industry: packaging, appliances, smartphones, automobiles, toys, safety devices, athletic equipment, the list goes on…

When Hurricane Laura hit Texas and Louisiana in August 2020, production at  petrochemical factories shut down, resulting in 10 to 15 percent shortfalls in the production of chemicals critical to plastics manufacturing.  And delayed once again when the Gulf Region fell victim to an unprecedented winter storm in February.

Semiconductors

Semiconductors drive everything from automobiles to appliances to gaming systems to laptop computers. During the global pandemic, there was an increase in demand for computing equipment ranging from home computers to laboratory equipment.  Subsequently, this component, critical to nearly every electronic device, is now in short supply. Industries that rely on semiconductors are struggling to meet consumer demand, and experts say that the shortage may be around for a while.

 

Supply Chain Outlook for 2021

As if the pandemic, wildfires, hurricanes, and historic winter storms were not enough, the recent six-day blockage of the Suez Canal caused yet another hit to the supply chain. Even after the blockage cleared, it took seven additional days to move over 400 delayed ships through the re-opened canal and set them back on their way.

It may be months before industries and consumers understand the broader impact of these disruptions. For now, exercise patience and don’t plan on quick shipping with any goods reliant on plastics, semiconductors, or building supplies. Order ahead and plan for delays.