Pandemic caused perfect storm for supply chain crisis, experts say
It was hard to get through 2021 without hearing about the supply chain.
Before the pandemic, the way products from all over the world would get to American consumers seemed to be a part of a smooth-going system. A survey of consumers found that 45% of Americans admitted to never thinking about how their products were made and delivered before the pandemic.
But the last year has seen dozens of ships stuck at ports, warehouses full to the brim with stuff and a shortage of truck drivers, all leading to emptier shelves and out-of-stock messages online. Issues with the supply chain have led to shortages across the country of goods ranging from cars to cream cheese to Christmas trees.
Experts believe the pandemic caused a perfect storm of factors that led to cracks in the supply chain that was already vulnerable in the first place.
“You have a supply chain that has been built on a premise of being lean and efficient and that works great when things are operating smoothly,” said Keely Croxton, a professor of logistics at Ohio State University. “But as soon as there’s a glitch in the supply chain, these lean supply chains become brittle and break.”
Companies today largely rely on a supply chain model called “just in time” that was created by Toyota in the 1950s. As its name suggests, the model has companies keep few raw materials on hand and only order them when they need it, all with the goal of getting the end product to consumers just on time.
The “just-in-time” model clashed with the reality of consumer demand during the pandemic. Many companies assumed that demand would drop as the spread of Covid-19 caused worldwide shutdowns, including in manufacturing factories. But the pandemic ended up bolstering consumer demand for goods as aid from stimulus bills and savings from spending less on other expenses like travel and eating out encouraged people to shop online. Retail sales during the 2020 holiday season grew 8.3% despite the pandemic as Americans continued to shop.
Ultimately, consumers were wanting more goods while companies were simultaneously making less. This phenomenon particularly hurt the manufacturing of computer chips, which led to shortages of cars and some consumer electronics, like video game consoles.
Increased demand also saw more goods being shipped from Asia to the US, leading to seemingly indefinite congestion at two major ports in California. At one point, a record high of 100 vessels were waiting off the coast of Los Angeles to dock. Some ships were waiting months to unload their goods. This affected retailers like Victoria’s Secret, which saw half of its inventory for the fall season delayed because it was stuck on ships unable to unload.
Part of the congestion clog comes from a lack of space at the ports because they are overwhelmed with large empty shipping containers. Some reports say there are over 115,000 empty containers sitting in the ports of Los Angeles and Long Beach. The twin ports have started threatening ocean carriers with fine penalties for leaving empty shipping containers in the ports in an effort to offload empty containers. Costco and Walmart were some of the few major companies that resorted to renting shipping containers to ensure goods get to stores in time for the holidays.
On top of issues at the port, the US has been seeing a shortage of truck drivers. The trucking industry estimates that it is now short 80,000 truck drivers because of pandemic-induced retirements and resignations. In mid-December, the White House announced it would expand paid apprenticeships and recruit military veterans to bolster the industry, though the impacts of the initiative will probably not be seen any time soon.
Croxton said supply chain researchers have long studied the weaknesses of today’s supply chain and have advocated for more resilient structures that can handle disruptions. For example, companies could pay attention to weather events and news and track inventory levels throughout the supply chain. Shortening the supply chain, like relying on domestic manufacturing, would also mean more oversight.
“The number of disruptions that we’ve had in our supply chains has been increasing over the last decade,” Croxton said, citing extreme weather events and economic and political uncertainty. “This isn’t new to companies that the supply chains get disrupted.”