Editor
Delaware Business Times
With COVID-19 case rates falling nationwide to their lowest level since early August and the number of fully vaccinated Americans rising to 57% —with an uptick of doses delivered through the last summer and early fall— there were reasons to be looking up at the state of affairs as we enter the final quarter of 2021.
Much like a tsunami that follows an earthquake, however, the pandemic-spurred broken supply chain is now wreaking havoc on manufacturing, distribution and retail around the world. We saw the first waves of the storm hitting the U.S. earlier in the summer when a shortage of semiconductor computer chips led automakers to pause production of vehicles at plants without the necessary components to finish them. That led to an emptying of new car sales lots and a hike in the price of used vehicles.
Now, retail stores are beginning to warn customers about ordering Christmas gifts to ensure they will arrive at their doorsteps before Dec. 25. The inability to get toys, clothing, homewares and other products through U.S. ports from overseas manufacturers means shelves will be barer this winter and prices will likely increase on what makes it through.
It’s not a crisis limited to cars and toys though.
I was talking to the owner of a large bakery recently who was lamenting the inability of his business to secure enough basic ingredients like flour. Shipments are stuck at sea, waiting weeks for a place to make it into port, and then a labor shortage limits the number of stevedores available to get cargo out to buyers.
I’m also seeing it in the homebuilding industry, where appliance shortages and dwindling building materials amid a building boom has led to lengthy delays in home sale closures. A brand-new home across the street from me has sat vacant for months now, with only occasional activity to move the site closer to finish. Our block has been littered with half-finished homes in need of windows or oven ranges in the past year. Two years ago, the same builder finished my home in about four months.
Why all of this is occurring dates back to the early days of the pandemic in 2020, when workers were out sick, governments locked down non-essential production, trade between countries was stymied by health regulations, companies decreased purchase orders amid falling demand – and the circle goes on and on. I liken it to a train rolling down the tracks only to strike a boulder on a curve; the train cars closest to the boulder stop immediately like those closest to the pandemic’s epicenters while the rest of the world waits for the shockwave of the crash to reverberate to the cars at the rear.
By the time the global supply chain was able to get up and moving again there was weeks, if not months, of backlog to work through. We’ll likely still be working through the ramifications of that backlog well into 2022.
All of these supply chain woes are also leading to rising inflation – basically prices are going up and therefore our dollars have less buying power. In September, the all-important Consumer Price Index rose 5.4% year-over-year and 0.4% from August. That, coupled with the supply chain outlook, is starting to be worrisome for even the most optimistic observers.
Patrick Harker, president and CEO of the Federal Reserve Bank of Philadelphia, recently said that he is “more concerned than I was six months ago that [inflation] may not be as transitory as I thought.” He estimated that inflation would run about 4% to end 2021, which would be the highest annual inflation mark in 30 years. But he also believes that it will drop closer to the Federal Reserve’s target 2% mark next year as the supply chain kinks get worked out. Until then, he advises to expect a bumpy road for quite some time.
“I talked to a good friend who runs an international shipping business and he said, ‘It’s going to be years before we can sort of get things back to where they were,’” Harker said.
