How does the supply chain work and why will it remain in crisis until mid-2022?

The world is experiencing shortages in the supply of a large number of products such as computer chips, cereales, toilet paper, exercise equipment, among many others.

Although the purchasing processes via mobile devices have been optimized, which allow purchasing a good with a single click from the palm of the hand and waiting for it to arrive at the door of the home, now certain products are out of stock or with a long wait for your acquisition.

In the health field, doctors face the effects of the worst pandemic in a century without adequate protective equipment, with insufficient medicines and vaccines.

In Alaska, people are struggling to find enough winter coats. Planes are delayed while crews wait for food deliveries.

What were the causes?

The pandemic has disrupted almost every aspect of the global supply chain.

The little perceptible way for the habitual consumer that goes from the manufacture, transport and logistics that leads the products from their manufacturing, extraction or cultivation site, to their final destination.

At the end of this chain there is another company or final consumer that has covered the amount of the finished product.

The shortage has caused the prices of many things to go up.

When did this start?

The outages date back to early last year, right in the early stages of the pandemic.

Factories in parts of the world where much of the global manufacturing capacity is located such as China, South Korea and Taiwan, as well as Southeast Asian nations such as Vietnam and European industrial giants such as Germany, were seriously affected by the spread of cases. of coronavirus.

Many factories closed or were forced to reduce their production because workers were sick or locked up.

In response, shipping companies cut their hours in anticipation of a drop in demand for freight transport around the world.

This short-term financial decision triggered a chain reaction of gigantic proportions.

In fact, the demand for some things – restaurant meals, trips to vacation destinations, spa services – has become a crater.

Americans took the money they used to spend on such experiences and redirected it to goods for their homes, which suddenly doubled as offices and classrooms.

Sales of new office chairs and printers skyrocketed, while they acquired gym equipment and video game consoles.

Increased the purchase of products like paint and wood for projects that added space or made its existing boundaries more comfortable.

The timing and quantity of consumer purchases flooded the system.

Why don’t factories just produce more?

Factories whose production tends to be quite predictable increased to meet an increase in orders.

Some factories did, Peter S. Goodman explains in his article for The New York Times, but this created other problems.

Factories require components to make the things they export. For example, a computer assembled in China may require a chip made in Taiwan or Malaysia, a flat screen from South Korea, and dozens of other electronic devices sourced from around the world, requiring specialized chemicals from other parts of China or Europe.

The sharp increase in demand bogged down the goods transportation system that the factories needed.

At the same time, finished products, many of them made in China, were piling up in warehouses and ports across Asia due to a deep shortage of shipping containers, the standard-size steel boxes that carry goods in huge vessels.

What happened to all the giant container ships?

In simpler terms, they got stuck in the wrong places.

In the first phase of the pandemic, when China shipped huge volumes of protective equipment such as masks and hospital gowns around the world, the containers were unloaded in places that generally do not return much product to China, regions such as West Africa and South Asia. .

In those places, empty containers were piling up just as Chinese factories were churning out a huge wave of other goods destined for the rich markets of North America and Europe.

Because containers were in short supply and demand for shipping was intense, the cost of moving cargo skyrocketed.

Before the pandemic, shipping a container from Shanghai to Los Angeles cost perhaps $ 2,000.

In early 2021, the same trip cost up to $ 25,000.

Big companies like Target and Home Depot had to wait weeks and even months to get their finished factory products onto ships.

Meanwhile, in the ports of North America and Europe, where the containers arrived, the large influx of ships overwhelmed the availability of docks. In ports like Los Angeles and Oakland, California, dozens of ships were forced to anchor in the ocean for days before they could load and unload.

At the same time, truck drivers and dock workers were trapped in quarantine, reducing the availability of available labor to unload goods and further slowing down the process.

This situation was exacerbated by the closure of the Suez Canal after a giant container ship got stuck there, and subsequently, by the closure of China’s main ports in response to new cases of Covid-19.

Almost everything that is manufactured is in short supply. That includes everything from toilet paper to new cars.

The disruptions date back to the beginning of the pandemic, when factories in Asia and Europe were forced to close and shipping companies cut their hours.

The demand for household items skyrocketed.

Money that Americans once spent on experiences was redirected to things for their homes.

The surge bogged down the system for transporting goods to factories that needed them, such as computer chips, and finished goods piled high due to a shortage of shipping containers.

Now, ports are struggling to keep up. In North America and Europe, where the containers arrive, the large influx of ships is overwhelming the ports.

With full warehouses, containers pile up in ports. Chaos in global shipping is likely to persist as a result of the massive traffic jam.

Nobody really knows when the crisis will end. Shortages and delays are likely to affect the holiday shopping season and it is unclear what will happen next.

Jerome Powell, chairman of the Federal Reserve, said he expects supply chain problems to persist “probably well into next year.”

Many companies responded to the initial shortage by ordering additional items, increasing tensions at ports and filling warehouses.

With the warehouses full, the containers, which suddenly served as storage areas, were piled up in the ports.

What exactly is in short supply?

Virtually anything that is produced or manufactured, from chemicals to electronics to running shoes.

Scarcity begets more scarcity.

A paint manufacturer that needs 27 chemicals to make its products can buy all but one, but that one, perhaps stuck in a container ship off Southern California, may be enough to halt production.

Why are new cars so hard to find?

Cars use computer chips, a lot of them, and the shortage of chips has made vehicle production difficult. In turn, that has made buying cars more difficult and expensive.

When will the shortage end?

Although it is not known exactly, experts estimate that the crisis in the supply chain will last until mid-2022.

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