Supply Chain Problems Upend the Global Economy
Nothing highlighted the United States’ reliance on foreign manufactured goods more than the Covid-19 pandemic.
China makes about half of the global supply of protective masks. But it stopped exporting them in the first quarter of 2020 to maintain its domestic supply. At that time, there were almost no mask manufacturers in the U.S. Today there are about 40, although some source material from China, according to the Alliance for American Manufacturing. It took an emergency and financial assistance from the U.S. government to bring mask production back to America.
America’s trade deficit in manufactured goods will likely reach a record high this year, exceeding $1 trillion, according to the U.S. Department of Commerce. Total imports for January through June 2021 have grown 33% from the same period last year, according to the 2021 Global Imports Report from Jungle Scout, the Amazon-seller platform.
Supply Chain Obstacles
The U.S. is still suffering from shortages — both finished goods and parts for products assembled domestically. This month Toyota expects to produce about 80,000 fewer vehicles in the United States than in previous years due to integrated chip shortages. Globally, Toyota anticipates a 40% production decline. Domestically Ford and General Motors store unfinished vehicles in airport and racetrack parking lots while waiting for missing components. GM has stopped domestic truck production.
Globally, it is difficult to get goods to their ultimate destination — even when available — because of supply chain problems. Goods often sit in containers at various ports worldwide due to ships being at the wrong port or lack of trucking. The Port of Long Beach, California, this week had a backlog of 72 container ships waiting to unload. The situation is similar at the Port of Los Angeles.
In the United Kingdom, supermarkets and fast-food chains are running short of certain items because of a lack of truck drivers and Brexit customs issues. Want a McDonald’s milkshake? Sorry. Some British McDonalds have run out of milk along with bacon and bread. In Germany, companies are paying about 15% more than they used to for imported goods, according to Bloomberg.
Shipping rates have skyrocketed, and shipping containers are in short supply. Air cargo, railways, and warehouses are also affected.
Inventories are lean and, with the holiday season approaching, it’s problematic whether the logistics industry can cope with the expected increase in demand. Labor is also hard to find. The trucking industry is being hit particularly hard, both in Europe and the U.S. Trucks are the primary source of transport once cargo is unloaded at a port. A shortage of drivers means much of the container cargo sits at a port or a warehouse.
Forbes magazine surveyed driver recruiting firms and found there is one qualified driver for every nine job postings. Walmart owns the U.S.’s third-largest fleet of approximately 6,500 trucks and is offering a $12,000 signing bonus in some areas. Many independent trucking companies are small and will find it difficult to compete with Walmart for labor.
Seeking New Manufacturing Locations
An increase in Covid-19 cases in China resulted in factory shutdowns in August, creating more uncertainty in an already chaotic situation. The price to ship a container from China to the U.S. West Coast has increased 130% since Covid-19 became a factor.
Furthermore, uncertainty caused by political tensions with China over the past few years has caused many American manufacturers to shift production from China to other countries.
Vietnam has become a hub for footwear and apparel manufacturing since 2019. Between 2015 and 2021, American imports from Vietnam have grown 88%. However, China still accounts for 41.5% of all imports in the U.S. The total deficit with China for the year ended July 31 is $187.2 billion, according to data from the Department of Commerce.
Recent Covid outbreaks in Vietnam have resulted in mandatory factory shutdowns. Research and consulting firm BTIG estimated that Nike, which relies on Vietnam for 51% of its footwear manufacturing, could lose production of as many as 160 million pairs of sneakers through spring 2022. Several consumer brands have issued alerts in their quarterly financial conference calls, forecasting decreases in revenue due to their inability to get inventory from Vietnam.
According to Bank of America analysts, Gap and Lululemon Athletica each source about a third of their production from Vietnam.
Imports to the U.S. from Vietnam grew by 14.2% from 2020 through June 2021, and imports from India grew by 31.9%, according to Jungle Scout. The largest categories of goods from India are textiles and metals.
2021 Holiday Season
Merchants should expect to pay more for just about everything. Some products will not be obtainable. Consumers are warned to shop early because goods will be in short supply. Retailers will offer fewer bargains and discounts as they raise their prices due to the added supply-chain costs. Shipping delays will likely occur.
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