A single supply chain is so incredibly complicated that supply chain managers tend to be some of the most well-paid leaders in the corporate structure. The global supply chain, then, is so incomprehensibly intricate that economists devote their entire careers to understanding the booms and busts.
So, when an unprecedented supply chain event occurs, as happened in 2021, everyone interested and invested in the supply chain immediately got to work trying to piece together the story — its causes and its effects. Here is a quick rundown of what happened with the 2021 supply chain and whether it will happen again.
What’s the Deal With the Supply Chain?
A supply chain is a series of processes for acquiring and producing a good or service for a business. After World War II, international trade exploded, and businesses began to develop supply chains through multiple countries. Fast forward to the 1980s, and various global trade agreements that eased cross-border trade helped corporations of all sizes develop vast and convoluted international supply chains, taking full advantage of the lowest prices for materials and labor around the world. Today, products typically cross dozens of borders before they reach their end users, and companies can offer wider selections of products and lower costs to consumers.
Yet, in 2021, roughly a year after the beginning of the COVID pandemic, global supply chains began to slow. Delayed shipments resulted in shortages of certain materials and products. In the United States, consumers noticed the lack of availability of some critical products, particularly electronics and vehicles, but jewelry, clothing, pet supplies and home and garden items have also been in short supply.
What Caused Supply Chain Disruptions?
Supply chain management is a remarkably difficult task, and every company experiences some supply chain disruption at some point in their journey. However, supply chain disruptions tend to be notably brief or else easily overcome; why was 2021 different?
The easy answer is “the COVID pandemic,” but the truth is slightly more complicated — as anything concerning supply chains seems to be. There are four ways the COVID pandemic influenced the circumstances of the global supply chain to cause the 2021 crisis:
Pent-up Demand
Consumers were forced to change their behavior during the height of the pandemic in 2020 because so many businesses were compelled by governments to lock their doors until the threat of the virus passed. Yet, the threat of the virus continued to linger for over a year, and frustrated consumers began spending the money they had saved from not going to restaurants, movie theaters and gyms on items like kitchen gadgets, electronics and home workout gear. Many businesses were unprepared for such an explosion of demand, so their reserves of products were immediately depleted.
Shipping Costs
Several factors contributed to higher shipping costs through 2021. For one, recent consolidation within the shipping industry has resulted in less competition and higher prices for businesses. For another, China has maintained strict pandemic measures in its ports in an attempt to reach zero COVID cases countrywide. As shippers lose time dealing with the slow activity at China’s ports, their prices for shipping increase.
Cargo Wait Times
China is not the only country suffering from slowdowns at its ports. In the U.S., major ports are seeing exceedingly high levels of activity, with more cargo to move than ever in their history — but a shortage of labor has meant that much of that cargo has remained piled on docks for weeks. What’s more, the Great Resignation, another fascinating trend in 2021 and 2022, has resulted in insufficient truck drivers to transport goods overland, so many businesses are left to wait while their goods remain stuck on shore.
Material Shortages
Some goods were backlogged before the pandemic began, so the weeks and months of no or slow production has caused an extreme scarcity problem. For example, computer chips are vital components for many highly desired products, like laptops, smartphones and cars, and the disruption to their manufacturing has resulted in widespread and lingering supply issues. Material shortages will not disappear overnight; it could take months or years before manufacturers are able to account for the snowballing demand.
Governments are looking for solutions to the supply chain crisis, such as loans to ports to modernize and hire more labor, but businesses need to find their own solutions to the issues affecting their unique supply chains.
