The Perfect Enemy | COVID-19 broke supply chains. Now on the mend, can they withstand another shock? - WLWT Cincinnati
January 29, 2023

COVID-19 broke supply chains. Now on the mend, can they withstand another shock? – WLWT Cincinnati

COVID-19 broke supply chains. Now on the mend, can they withstand another shock?  WLWT Cincinnati

Read Time:17 Minute

inflation remains at *** 40 year high. It’s such *** sharp increase in prices. Year over year. You’ve probably felt it in your pocket at the grocery store and gas station. Everything’s going crazy and you’ve surely heard politicians talk about it ahead of the midterms to focus on the economy. I don’t believe this new bill is going to lower inflation. It is out of control. But what effect will inflation have in the voting booth Inflation measures the rise of prices of goods and services. It’s tied to supply and demand, meaning if lots of people want to spend money on goods but there aren’t enough goods to go around then prices for them will go up *** little bit of inflation usually around 2% is considered healthy. Issues arise when inflation gets too high, making everything more expensive and the spending power of *** consumer declines. That is what is happening right now. As of September 2022, the US consumer inflation rate set at 8.2%. Some items were hit harder than others with egg prices up 39.8%. Energy was up 19.8% and gas was up 18.2% Bloomberg estimates that Americans will spend $5,000 more this year due to inflation. Why is that Experts point to *** couple of key reasons many of them stemming from the pandemic. The first, the COVID-19 lockdowns with restrictions in place and people sheltering at home. Many businesses were shuttered, slowed down and laid off staff then once restrictions eased everyone was desperate to spend according to Elaine Kamarck, *** senior fellow at the Brookings Institute. So one of the first factors in inflation is demand. Lots of people want to to do the same thing, they wanted to buy new things, they wanted to go shopping, they wanted to go on vacations, etcetera. And when lots of people come into the economic system, prices go up. The pandemic also encouraged big government spending. The government rightfully poured *** lot of money into the economy to help people who were struggling through Covid, there was *** lot more money into the economy, stimulus checks, unemployment payments, child tax credits and other relief funds boosted the cash in people’s pockets. The pandemic also spurred people to quit their jobs. Some workers got sick and had to drop out of the workforce for others. An early retirement back in when you have *** worker shortage, you have to pay people more to get them to work. And in fact that in contributing to inflation, then there were supply chain issues. Okay, the supply chain simply broke down during covid lockdowns, labor shortages and shifts in demand disrupted supply chains worldwide. Now, the war in Ukrainian continued covid related issues in china wreak havoc on supply chains, although many of those factors are global who do americans blame for soaring costs. *** yougov poll from july found that 45% of americans give President biden *** lot of responsibility for rising inflation and 28% give him some, regardless of the complex causes of inflation. It is hitting people hard, it has gone beyond the limits of people’s income and they’re having *** very hard time making it. I’m sensing *** lot of fear and *** lot of panic. Mom of three based in Annapolis Maryland, Daniella night is struggling to keep up all of our expenses have kind of skyrocketed, inflation is cut into their budget for essentials, like healthcare, for her special needs. Daughter. I’m not able to provide to my daughter as many therapy sessions as I would like. It’s just saddening that families have to make those decisions. It is also hitting small businesses. Small businesses work on *** very small, slim margin. Raw materials are high fuel prices are higher and small businesses can’t escalate their pricing as quickly as corporations can. There’s no doubt americans are feeling the impacts of inflation, but how might that affect voting in this year’s midterms. The republicans are pushing hard on inflation. That’s what they’re pushing the Democratic message is really about abortion. It’s about choice in october new york times. Sienna poll showed that 44% of voters said that economic concerns are the most important issue facing the country higher than any other issue. The voters that place inflation as *** top priority, overwhelmingly favored republicans very, very hard if you’re the party in control to try to to win re election when the economy is as free, so many americans as it is now. Republicans know this and are pushing the point hard, democrats have absolutely failed on the economy. We have seen inflation skyrocketing. Republicans often blame high stimulus spending for the rise of inflation. Senate democrats are misreading the american people’s outrage is *** mandate for yet another yet another reckless taxing and spending spree. We need to stop the spending. Economists disagree about just how much the american rescue plan added to inflation, But estimates hover between one and 4%. However, many agree that the stimulus helped the economy bounce back after the pandemic. Some of the aid was essential for families like Daniela’s. If we had not received the stimulus or the unemployment that we would not have survived. Yeah, we would not have survived. Democrats are touting their recently passed inflation reduction act, which lowers prescription drug prices and invest in climate infrastructure as *** solution. It’s what the american people want. It’s what the country so desperately needs and it’s what democrats will deliver on. Studies have shown that despite its name, it is unlikely to impact inflation in either direction, dems are also turning to corporate greed as the cause of inflation. President biden says there is mounting evidence of anti consumer behavior by oil and gas companies saying prices have climbed as refined fuel costs have fallen and industry profits have increased. I think some voters definitely will vote on inflation and blame the president President always gets blamed whether it’s their fault or not, they’ll blame the President. And I think there’s other voters who will probably vote on other things. It’s very naive to think that we can blame inflation simply on the democratic administration. There are promises on either side about controlling inflation. But what can actually be done about Presidents have no control over demand, right? So so they can’t say, hey guys, don’t go shopping, don’t don’t buy what you need to buy. Don’t take that vacation that you’ve delayed for three years. The President can also try and um at at least help the energy price issue. They can work on the supply chain issues. The biden administration has created *** supply chain task force and has released oil from the Strategic Reserve to reduce price. The question is by how much are you going to push down price experts agree there is little that the government can do to tackle inflation. The few options available are raising taxes, cutting spending, limiting prices and removing import tariffs, most of which require bipartisan cooperation and aren’t guaranteed to make *** big impact even if measures are put in place, they can take years to realize the Federal Reserve holds significant control here too. It operates independently from the government and can raise interest rates to encourage consumers to spend less and save more. The reserve has already begun hiking interest rates in an effort to cool spending inflation is *** complicated issue with even more complex solutions, most of which lie in the hands of the Fed and the global market, not solely in those of politicians vying for election.

Advertisement

COVID-19 broke supply chains. Now on the mend, can they withstand another shock?

The pandemic dislodged the global supply chain, hurling once smoothly running businesses, industries and economies into a state of disarray.After almost three years of enduring wild swings and extremes, the system is slowly getting up to speed and into better sync: Ocean freight timelines are on a steady decline, ports are less congested, labor strikes have been narrowly averted, product and worker shortages have eased, prices have fallen, warehouses are full (maybe too full), friendshoring, nearshoring and reshoring efforts have accelerated and China has lifted its “zero COVID” policy.”We’ve had a fundamental shift that started about six months ago,” said Timothy Fiore, chair of the Institute for Supply Management. “There are certain components, like integrated circuits microcontrollers, that still are impacting manufacturers’ ability to flow material. But, by and large, the pressure has come off.”However, plenty of potential roadblocks still loom large.Globally, developments in China and Ukraine remain ongoing question marks, especially if the manufacturing megapower suffers another setback or lockdown, or if conditions worsen with Russia’s war in Europe.Domestically, exports have weakened and the state of consumer demand remains a wild card, said Phil Levy, chief economist with freight forwarder and consultancy firm Flexport.”I would not describe this as a machine that’s humming along at the moment,” he said. “It’s more getting its bearings and trying to figure out what’s next.”Among the potential bottlenecks: Warehousing capacity in certain locales, notably Southern California, is pretty near full, he said. Additionally, the inland distribution network — especially rail and areas where transfers are made from one mode to another — has experienced some challenges, he said.The system isn’t yet at a steady state where businesses have a good sense of how long it will take for production, shipping and, ultimately, selling.”I don’t think we have that,” Levy said. “There’s still a lot of uncertainty about how long it takes to move stuff. When we see the warehouses piled full, is this because demand is too low? Is it because people moved stuff too early? So there’s a lot of stuff that’s still sorting out.”Returning to normalSupply chain activity has yet to normalize, but it’s returning to pre-pandemic trajectories, said Zac Rogers, assistant professor of operations and supply chain management at Colorado State University.”There’s a sort of reaction-overreaction pattern that always tends to happen anytime there’s a major disruption,” Rogers said. “And COVID is the major-est disruption we’ve had.”Early in the pandemic, businesses canceled orders, believing consumer spending would be crushed. However, trillions of dollars were injected into the economy to try to keep consumers and businesses afloat. Americans, stuck at home with fewer outlets for discretionary spending, turned to e-commerce for their shopping.The surge in demand for finished goods at a time when supply was severely limited in part due to pandemic-related labor shortages and shutdowns —notably of cities, factories and manufacturing hubs in China — knocked the global logistics system out of whack.Ports grew congested, lead times got lengthy, and costs climbed considerably higher as shortages spiked throughout the supply chain.”Everyone way over-ordered, and around February and March of year, everything got here — pretty much right in time for the invasion of Ukraine,” Rogers said.Gas prices and inflation soared, putting a huge dent in consumer spending.”The challenge for the last 10 months in supply chains has been to try to thread the needle between bringing inventories down to a reasonable level, while also not overreacting, yet again, and back into a shortage situation,” he said. “We’re getting back toward the trend line in a way that we haven’t in the last few years.”Reshoring and smoother flowsHelping that along is that supply chains are far more resilient now than they were at the end of 2019, Rogers said.”In 2019, we had basically all of our chips in on one hand, which was, things are built in East Asia, come on a boat through the ports in Southern California, they get on trains that go to Chicago and then on other trains or trucks to distribute to the East Coast,” he said.And while it’s nearly impossible to divorce from China, companies are embracing different paths for the supply chain, whether it be in Vietnam, Bangladesh, Central America or domestically, Rogers said.”Because of that, supply chains are not as brittle as they were three years ago,” he said. “And so if there is another shock — particularly if there’s a China-centric shock — I think we’ll be able to absorb it a little better than we had. … But you can’t price in something like the invasion of Ukraine or a viral outbreak that shuts down the world — no systems are built to handle that smoothly.”Rogers is also a researcher and co-author of the Logistics Managers’ Index, a monthly survey of supply chain executives conducted by a team of university researchers and the Council of Supply Chain Management Professionals.The index’s December reading — which measures inventory levels and costs; warehousing capacity; utilization and prices; and transportation capacity, utilization and prices — came in at 54.6, a 1-point increase following eight months of declines.The majority of the LMI metrics were in the range of 40s, 50s and 60s, Rogers said, noting it’s the first time since the onset of the pandemic that the indices haven’t been in the 70s or 80s.”If you’re in 40, that’s contraction, but 50s are normal, healthy rates of growth,” he said. “There could be another huge black swan event in a month that throws everything upside down; but for right now, it seems like respondents are predicting steadiness in the supply chain.”If anything, the pandemic’s shock to the supply chain should be a wake-up call, said Jack Buffington, director of supply chain and sustainability at First Key Consulting and assistant professor of supply chain management at the University of Denver.”I would categorize it as ‘efficiently broken,'” said Buffington, whose own book about supply chains, “Reinventing the Supply Chain: A 21st Century Covenant with America,” had its release delayed due to supply chain issues.”All supply chains really are is supply and demand, and there’s been so much disruption in materials and consumer demand related to labor and inflation and geopolitics,” he said. “Inherently, the foundation of the model is broken in comparison to what the demands are for today. The complexities related to a globalized supply chain, human systems aren’t capable of handling it.”He added: “COVID wasn’t the cause of the problems with the supply chain, it was a trigger to show how bad it was,” he said.

The pandemic dislodged the global supply chain, hurling once smoothly running businesses, industries and economies into a state of disarray.

After almost three years of enduring wild swings and extremes, the system is slowly getting up to speed and into better sync: Ocean freight timelines are on a steady decline, ports are less congested, labor strikes have been narrowly averted, product and worker shortages have eased, prices have fallen, warehouses are full (maybe too full), friendshoring, nearshoring and reshoring efforts have accelerated and China has lifted its “zero COVID” policy.

Advertisement

“We’ve had a fundamental shift that started about six months ago,” said Timothy Fiore, chair of the Institute for Supply Management. “There are certain components, like integrated circuits [and] microcontrollers, that still are impacting manufacturers’ ability to flow material. But, by and large, the pressure has come off.”

However, plenty of potential roadblocks still loom large.

Globally, developments in China and Ukraine remain ongoing question marks, especially if the manufacturing megapower suffers another setback or lockdown, or if conditions worsen with Russia’s war in Europe.

Domestically, exports have weakened and the state of consumer demand remains a wild card, said Phil Levy, chief economist with freight forwarder and consultancy firm Flexport.

“I would not describe this as a machine that’s humming along at the moment,” he said. “It’s more getting its bearings and trying to figure out what’s next.”

Among the potential bottlenecks: Warehousing capacity in certain locales, notably Southern California, is pretty near full, he said. Additionally, the inland distribution network — especially rail and areas where transfers are made from one mode to another — has experienced some challenges, he said.

The system isn’t yet at a steady state where businesses have a good sense of how long it will take for production, shipping and, ultimately, selling.

“I don’t think we have that,” Levy said. “There’s still a lot of uncertainty about how long it takes to move stuff. When we see the warehouses piled full, is this because demand is too low? Is it because people moved stuff too early? So there’s a lot of stuff that’s still sorting out.”

Returning to normal

Supply chain activity has yet to normalize, but it’s returning to pre-pandemic trajectories, said Zac Rogers, assistant professor of operations and supply chain management at Colorado State University.

“There’s a sort of reaction-overreaction pattern that always tends to happen anytime there’s a major disruption,” Rogers said. “And COVID is the major-est disruption we’ve had.”

Early in the pandemic, businesses canceled orders, believing consumer spending would be crushed. However, trillions of dollars were injected into the economy to try to keep consumers and businesses afloat. Americans, stuck at home with fewer outlets for discretionary spending, turned to e-commerce for their shopping.

The surge in demand for finished goods at a time when supply was severely limited in part due to pandemic-related labor shortages and shutdowns —notably of cities, factories and manufacturing hubs in China — knocked the global logistics system out of whack.

Ports grew congested, lead times got lengthy, and costs climbed considerably higher as shortages spiked throughout the supply chain.

“Everyone way over-ordered, and around February and March of [last] year, everything got here — pretty much right in time for the invasion of Ukraine,” Rogers said.

Gas prices and inflation soared, putting a huge dent in consumer spending.

“The challenge for the last 10 months in supply chains has been to try to thread the needle between bringing inventories down to a reasonable level, while also not overreacting, yet again, and [landing] back into a shortage situation,” he said. “We’re getting back toward the trend line in a way that we haven’t in the last few years.”

Reshoring and smoother flows

Helping that along is that supply chains are far more resilient now than they were at the end of 2019, Rogers said.

“In 2019, we had basically all of our chips in on one hand, which was, things are built in East Asia, come on a boat through the ports in Southern California, they get on trains that go to Chicago and then on other trains or trucks to distribute to the East Coast,” he said.

And while it’s nearly impossible to divorce from China, companies are embracing different paths for the supply chain, whether it be in Vietnam, Bangladesh, Central America or domestically, Rogers said.

“Because of that, supply chains are not as brittle as they were three years ago,” he said. “And so if there is another shock — particularly if there’s a China-centric shock — I think we’ll be able to absorb it a little better than we had. … But you can’t price in something like the invasion of Ukraine or a viral outbreak that shuts down the world — no systems are built to handle that smoothly.”

Rogers is also a researcher and co-author of the Logistics Managers’ Index, a monthly survey of supply chain executives conducted by a team of university researchers and the Council of Supply Chain Management Professionals.

The index’s December reading — which measures inventory levels and costs; warehousing capacity; utilization and prices; and transportation capacity, utilization and prices — came in at 54.6, a 1-point increase following eight months of declines.

The majority of the LMI metrics were in the range of 40s, 50s and 60s, Rogers said, noting it’s the first time since the onset of the pandemic that the indices haven’t been in the 70s or 80s.

“If you’re in 40, that’s contraction, but 50s are normal, healthy rates of growth,” he said. “There could be another huge black swan event in a month that throws everything upside down; but for right now, it seems like respondents are predicting steadiness in the supply chain.”

If anything, the pandemic’s shock to the supply chain should be a wake-up call, said Jack Buffington, director of supply chain and sustainability at First Key Consulting and assistant professor of supply chain management at the University of Denver.

“I would categorize it as ‘efficiently broken,'” said Buffington, whose own book about supply chains, “Reinventing the Supply Chain: A 21st Century Covenant with America,” had its release delayed due to supply chain issues.

“All supply chains really are is supply and demand, and there’s been so much disruption in materials and consumer demand related to labor and inflation and geopolitics,” he said. “Inherently, the foundation of the model is broken in comparison to what the demands are for today. The complexities related to a globalized supply chain, human systems aren’t capable of handling it.”

He added: “COVID wasn’t the cause of the problems with the supply chain, it was a trigger to show how bad it was,” he said.