Supply chain disruptions explained
Pile-up on the global logistics highway
Supply chain stories are big news today as shipping disruptions have impacted each one of us. We are all feeling the pain of not getting what we want when we want it.
Retailers and manufacturers are having an increasingly difficult time keeping store shelves filled and fulfilling orders due to a confluence of issues and their downstream impacts.
The logistics pipeline that delivers $1 trillion worth of electronics, games, toys, and furniture each year(1) was interrupted abruptly by COVID and is now experiencing what is known in the supply chain world as the classic “bull whip effect”. Downstream disruptions to those industries that provide critical components or raw materials to those who transport products from ocean shipping, to trucks, to rail and beyond. The bottom line: COVID was the catalyst that created a huge, gnarly, global traffic jam. Not unlike a typical highway car accident, this massive logistics traffic jam will take time to clear up and smooth out…late 2022, according to experts involved closely on all sides. (2)
When it comes to moving products globally, there are only two choices: plane or ship. Given that air freight can cost 5 times more than ocean shipping and with far less capacity, it is obvious why ocean shipping accounts for 90% of the movement of international goods. The cost to ship an ocean container from China to California hit a record high of over $20,000, which is nearly 10 times the cost of what it was a few years ago. (3) Not only are freight costs up, but everything is backed up and it is taking twice as long to receive a container of goods as it did prior to the pandemic. (4)
There is no one reason for all of this. It is a confluence of issues that are driving the disruptions and exacerbating the problems. This story is not a surprise to those operating in supply chain. In fact, this type of stuff happens all the time, just not at this level.
As indicated earlier, it is not one thing, but a confluence of events and issues that have complicated the global logistics network. However, it all started with the supply and demand disruptions resulting from the pandemic. Below is a summary of what is going on:
For years, logistics has been viewed as a “necessary evil” with a focus on cost reduction. The advent of ecommerce, and the emphasis on two-day delivery championed in large part by Amazon Prime, shifted the focus from cost to service. The pandemic and related supply chain disruptions has shifted the focus to risk management. Logistics is now viewed by companies as a “strategic priority”. (5)
Although waiting a few extra months for the new microwave or sofa might have been an inconvenience, the world continues to spin on its axis quite nicely, despite the unprecedented circumstances that have rocked our globe.
To all the hard-working, front-line supply chain workers, we should say “thank you” for keeping food on our tables, medicines in our cabinets, vaccines in close supply, and toilet paper in our bathrooms during these challenging times.