How is the Global Supply Chain Crisis Affecting Your Business

Global Supply Chain Crisis

COVID-19 caused global supply chains to collapse in 2021, and its effects are ongoing. As a result of this economic slowdown, businesses have been impacted drastically.

Many companies wonder whether this will change anytime soon, and much is still up in the air. Here are several key ways the global supply chain crisis continues affecting economics.

Demand Continues to Outstrip Supply

One of the most obvious impacts of the economic slowdown has been inflation. As the price of everything increases, many are wondering whether this will change.

When the pandemic began, governments around the world reacted by locking down. This had the knock-on effect of constraining manufacturing, curtailing production.

However, consumers were still ravenous in their demand for products, goods, and services. As a result of this imbalance, demand began outpacing supply, and it continues to do so.

The United Nations Conference on Trade and Development reported a 1.5% price hike. Yet, small island developing states were hit the hardest with an average increase of 7.5%.

Nevertheless, the demand spike has only worsened this imbalance once countries reopened. Since there was artificial demand suppression, this may be the case for much longer.

Slowdowns Are Affecting Production

Global lockdowns shut down factory production, stalling supplies and triggering inflation. Chip manufacturing has been among the worst-affected sectors, leading to massive shortages.

To illustrate, vehicle manufacturing depends on steady chip shipments from China. These semiconductors are essential to production processes, and without them, manufacturing stalls.

Since US factories could not source these supplies, they had to shutter plants. Factory shutdowns exacerbated supply-side issues further, contributing to inflationary pressures.

Moreover, much of the US’s production was shipped overseas. Thus, many American companies are dependent on foreign production of parts. Likewise, when Vietnam had to lock down, it contributed to supply chain problems here.

Transporation Has Become Much More Expensive

Fuel is among the most affected commodities in terms of inflation. Besides inflating the cost of driving, it has weighed heavily on transport costs. Regardless of the method, transportation has become much more expensive than pre-pandemic.

Nevertheless, more than just rising fuel prices contribute to inflated transportation costs. Even after reopening, countries could not source containers since they were dislocated.

According to Drewry’s shipping index, shipping container costs skyrocketed by 600%. Before the pandemic, a 40-foot steel container only cost $2,000, and the same one would run $14,000 today.

These rising costs have led many businesses to make hard decisions. Either they eat the losses themselves or pass the increases onto the consumer.

Ports Have Seen Massive Backlogs

The UN has reported that containers are still spending 20% longer at port than prior to the pandemic. Extended delays affect more than containers, and trailers and ships are stuck in port.

To conceptualize the dilemma, think about it this way. Because ships cannot unload their containers, fewer empty containers are waiting for goods. Therefore, even sourcing a container is time-consuming when companies need to ship stuff.

Thanks to increased demand, ports are backed up, and many of them have been at full capacity for months.

In addition, many ports do not have sufficient workers to operate at max speeds. This only exacerbated the slowdowns, and shipping is becoming a veritable logjam.

Labor Shortages Are Impacting Every Sector

Ports are not the only sector being affected by a labor shortage. In fact, nearly every part of the global economy has seen labor problems.

The United States reports a shortfall of 80,000 truckers, making it difficult to get goods out of ports. Such a shortage has negatively diminished local, regional, and national trade volume.

The US Bureau of Labor Statistics has seen double the number of openings compared to last year. Increased labor demand appears to be impacting manufacturing and warehousing the most.

How Analytics Can Help Businesses Respond

Supply chain analytics is more important than ever. Businesses can respond effectively by monitoring inventory, warehouse processes, and transportation in real-time. If disruptions have adversely impacted your company, analytics may relieve some pressure.

A Broad Analysis of the Supply Chain Crisis

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Managing the worldwide pandemic has done massive damage to supply chains. Nonetheless, businesses adapt, innovate, and overcome disruptive changes all the time. Analytics may be one tool you can use to address this problem.