Over the last few years, we’ve spoken a lot about inflation and how rising costs have taken a heavy toll on everyday consumers. We’ve discussed the way that many factors have converged to play a part in ratcheting up costs and financial burdens for American households. Factors include the multilayered economic fallout from the pandemic, rising energy prices, and ongoing labor shortages.
But there is another fundamental economic issue driving high prices everywhere you look from the grocery store to the pump. The disruptions caused by the COVID-19 crisis had a direct and profound impact on the global supply chains in ways that we continue to experience to the present day.
We may no longer be facing the empty shelves and shocking shortages in basic goods like toilet paper and household cleansers that typified the peak of the pandemic in 2020 and 2021. However, we continue to experience myriad effects of a global supply chain that has still not fully normalized. Indeed, while shelves may not be completely bare in your local big box stores, perhaps you’ll note that they are sometimes sparse.
If we aren’t feeling the shortages with quite the intensity that we experienced a few years ago, when basic household essentials became difficult to acquire, we can certainly feel the consequences of our supply chain issues in the rising prices of consumer goods. And it would also do us well to look at the events of the last several years as a warning, rather than an anomaly.
The better we understand the causes of our supply chain woes, the better we can anticipate, prepare for, and navigate far-reaching events like the pandemic.
If you’re looking for a deeper understanding of inflation and its impact on your household budget, jump to our article on rising prices and the continued challenges faced by American consumers.
Otherwise read on and find out more about the challenges facing global supply chains in the coming year and beyond.
What Does Supply Chain Management Mean to You?
The supply chain may seem like something of a remote concept when you’re checking out at the grocery store. But it is immediately relevant to what you pay for basic necessities like eggs, milk, and laundry detergent.
That’s because the sequence of events which brings those items to your local grocery store shelves is built directly into the price you pay. From the cost of the shipping containers used to convey your groceries to the fuel costs used to ship these containers to a port near you; from the cost to disperse these goods to trucking fleets to the expense of employing the truck drivers who will ultimately deliver these goods to your local grocer–every step in the supply chain carries a cost.
And when delays, disruptions or cost increases in fuel or materials arise within the supply chain, these expenses are consequently built into the price of the resulting consumer goods. In other words, when something disruptive occurs within the supply chain–like a shortage of shipping containers, a blockage in a major port, or the sudden disappearance of a major fuel source–you as the consumer will almost certainly feel the consequences when you pay for everyday items or, as we learned during the pandemic, when you lose access to these items altogether.
In other words, these remote events that may transpire in the far corners of the world have a way of making their presence felt in your everyday life. That’s why it’s important to understand how the supply chain works, what its potential impact is on your day to day budget, and what supply chain issues you should be aware of in the coming year.
10 Supply Chain Issues You Should Be Aware Of
1. Port Congestion
Even as many companies returned to business operations as usual in the aftermath of the pandemic, conditions at shipping ports throughout the world have remained in a state of disarray. Shutdowns and labor shortages helped to create a massive backlog of shipping containers at many ports. And of course, the influx and outflow of goods is constant.
So many of the backlogs that began during the first year of the pandemic have snowballed into ongoing port congestion in the years since. Indeed, according to technology-driven fulfillment company Extensiv, “Port congestion caused by the pandemic remains one of the top challenges for the world’s supply chains, seeing as port owners, carriers, and shippers are collectively still scrambling for a viable solution to this problem. Congestion occurs whenever a ship arrives at a port but cannot load (or unload) its freight because that station is already at capacity.”
This issue was only compounded when, in 2021, a container shipping vessel called the Ever Given ran aground in the Suez Canal– a major global shipping channel. This proved a significant disruption to the global shipping industry. Indeed, at one point, the BBC reported that the blockage resulted in an estimated $9.6 billion in lost global revenue every single day.
Though an extreme and out of the ordinary incident, the blockage of the Suez Canal underscores how the disruption of one major cog in the global shipping industry can lead to shortages of consumer goods, delays in bringing certain goods to your shelves, and scarcity driven price spikes for household essentials. Today, continued port congestion heightens the likelihood that consumers will feel these effects in their everyday lives.
2. Geopolitical Tensions
Of course, there are always geopolitical tensions. Diplomatic disputes, economic disagreements, and military conflict are a constant in our world. This means that the global supply chain is always at the mercy of geopolitical events. But that reality is greater and more immediate today than ever before.
This is because of a process called globalization. The last several decades have seen the proliferation of free trade agreements between nations, the removal of barriers to multinational commercial enterprising, and creation of numerous regional alliances built around trade.
To state it simply, global supply chains have never been more global. The economies of the world are now inextricably linked through these agreements, enterprises and alliances. But this means that events in one part of the world may have a direct impact on trade and supply chain issues in numerous other parts of the world. This impact is in stark evidence today.
Indeed, the Russia Ukraine conflict has had a profound impact on the global supply chain. Both Russia and Ukraine play major export roles in the global supply chain. According to a report from the University of Florida News, Ukraine was a major exporter of both agricultural goods and raw materials prior to the war, with the majority of its goods going to the European Union and China. Among other effects, the war caused a significant disruption to the wheat supply in Europe. In fact, prior to the war, Russia and Ukraine actually combined to export 28% of the world’s wheat.
Russia’s provocation of war also led to a major disruption in its role as a global supplier of several essential commodities. According to the UFL report, “Russia’s top exports were fuels and energy products (63%), followed by metals (10% percent), machinery and equipment (7.4%), and chemical products (7.4 %) with top export destinations being the China (12%), Germany (9%), and the Netherlands.”
The report also notes that Russia produces roughly 25% of the world’s nitrogen fertilizer, and that it plays a major part in supplying energy to various member states in the European Union. Its role as aggressor in the conflict with Ukraine caused a disruption in its relationships with numerous European nations.
This, in turn, contributed directly to a global spike in the cost of fuel, which has generally been reflected in higher prices for consumer goods across the board. This is just one example of how the geopolitical situation can lead to supply chain disruption with consequences for nations and households the world over.
3. Digital Transformation
Extensiv notes that while evolving technology offers promise for greater efficiency and higher productivity in the foreseeable future, adoption is not without its challenges. According to Extensiv, “It takes time and organizational realignment to put these technologies into action, particularly when working with multiple warehouses or omnichannel selling. And yet, supply chains must continuously evolve if they wish to stay ahead of the competition.”
Today, supply chain networks are in a state of transformation, working to integrate new technology into existing supply chain operations that can anticipate consumer demand, enhance dynamic supply chain planning, and minimize supply chain disruptions like those we’ve experienced over the last several years.
While this transformation will help us become better prepared for future supply chain issues, there will also be some growing pains along the way. As in other sectors of the global economy, the supply chain industry must ultimately find balance between the integration of new technologies such as AI and machine learning and effective labor management.
4. Labor Shortages
Speaking of labor management, one of the underlying causes of the current supply chain crisis is the persistence of the labor shortages which began during the global pandemic. With the onset of the pandemic, closures, lockdowns, layoffs, illness, and fatalities had far reaching effects on the economy.
The supply chain is an enormous and interdependent network of dock workers, truck drivers, logistics officers, container shipping operators, delivery workers, and much more. All of these areas were impacted by labor shortages during the pandemic.
But even as many returned to their places of business, labor and staffing problems persisted. While many workers in the broader U.S. labor economy found greater work life balance through remote work opportunities, supply chain work is still largely concentrated onsite. This, among other factors, may be contributing to a shortage of qualified or willing supply chain workers.
RF Gen, a firm that creates mobile solutions for companies managing inventory challenges, warns that the supply chain faces a continuing shortage of skilled workers. With the current population of supply chain workers aging toward retirement, there is a clear need for employers to find new ways of courting new recruits.
This has been a challenge thus far. According to RF Gen, “For many potential employees, working in the supply chain isn’t considered an attractive option—or an option at all. Companies looking to expand hiring must go the extra mile to make these jobs desirable.”
It will be incumbent upon supply chain leaders in various sectors to understand what today’s employee is seeking in a job and a career. A resilient supply chain will depend on the contributions of people with experience, education and skill. This will be especially true as the technology driving the industry continues to evolve. The supply chain professional of the future will require a full understanding of this technology and how it can be used to drive efficiency.
The path to addressing labor shortages in the supply chain industry may be through education–training the supply chain workers of the future to effectively leverage rapidly advancing technology and providing the financial compensation that professionals in this increasingly sophisticated field are deserving of.
5. Materials Scarcity
The peak pandemic period was defined by a scarcity of materials that resulted from facility closings, worker shortages, and mandatory lockdowns. While those more extreme measures may be behind us, the reality is that we still face many challenges when it comes to basic materials. And as noted above, many of those shortages have been triggered by geopolitical events such as the conflict between Russia and the Ukraine.
As a result, there are few signs that the rolling incidences of materials scarcity we’re experiencing today will soon be subsiding. Many global supply chain leaders are facing down critical shortfalls in areas like rubber, plastic and industrial metal supply. Shortages in specific chemical compounds–some as a result of extreme weather events in production-based regions–are also stifling manufacturing in many industries.
And a pandemic-related global shortage in semiconductors helped contribute to a massive shortfall of computer chips during the years between 2020 and 2023. The shortage continues to impact supply chains for manufacturers in the auto industry, video game business, consumer electronics sector and more.
According Extensiv, “a recent survey conducted by the Institute for Supply Management (ISM) revealed ‘record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices, and difficulties in transporting products across industries.'”
Reuters describes continued material shortages as a long-term hangover, noting manufacturers today are struggling to get their hands on a number of basic production necessities. These shortages are being felt acutely in the U.S. today, where we are investing considerable public resources in a number of much-needed but massive infrastructure projects. Consumers should be prepared for unpredictable shortages or price spikes in certain consumer items corresponding with related materials shortages.
6. Regulatory Compliance
While some of the supply chain challenges we face are based on crises within the global supply chains, there is at least one supply chain challenge that is rooted in practical need. As a global community, we are increasingly coming to recognize the need for broad and shared standards on issues like global climate change, labor rights, human rights and consumer safety standards.
In addition, the growing risks of cyberattacks, terrorist attacks, and extreme weather events are driving a wave of new regulatory compliance requirements. These requirements may impact the cost and speed of operations for those in the shipping, trucking, packing, logistics and courier businesses among many others.
But with this growing push for regulatory oversight and enforcement, there is a practical burden on many businesses. Adjusting to and achieving compliance with changing regulations takes time and money. As RF Gen explains, “Regulatory compliance remains a crucial challenge for supply chain companies in 2023 and beyond. As governments impose stricter regulations to ensure product safety, environmental protection, and ethical sourcing, businesses must adapt their operations to remain compliant and maintain their market position.”
Those who fail to adjust to these new standards risk fines, penalties and even disruption to their business operations. Any such disruptions could have a domino effect on the broader supply chain.
7. Reduced Customer Demand
Ironically, one of the challenges in the aftermath of the pandemic has been for retailers to find ways of leveling out production capacity and inventory levels based on a leveling demand. According to Reuters, retailers, shippers and warehouses are working to adopt on-demand models to counteract some of the overstocking that occurred in response to post-pandemic level demand. Logistics providers are relying more heavily on emergent technology like machine learning tools to make this change.
Accordingly, says Reuters, “Companies are also investing in everything from technologies to track the movement of goods to robotics and artificial intelligence to improve results.”
Such a strategy could be particularly valuable as shipping and warehousing operations work to get a handle on rapidly shifting supply and demand dynamics. Those supply chain operations that learn how to find balance amid these rapidly shifting dynamics will gain competitive advantage.
8. Securing Against Cybercrimes
As the supply chain management industry comes to rely on more sophisticated technology, it also makes itself more vulnerable to bad actors. According to KPMG, “In 2023, cyber criminals will likely be even more sophisticated when it comes to infiltrating supply chains to damage or steal from businesses. The supply chain can offer vulnerabilities that provide external parties with a pathway to get into your systems, particularly via your supplier network. Criminals could also hack in through basic warehouse equipment such as a barcode reader or via Internet of Things (IoT) devices applied within your manufacturing and other operational sites. Cyber risk will likely be compounded if you rethink your supplier networks and make changes to friendshore/nearshore, or invest in new technologies.”
This is top of mind for many supply chain leaders today. Logistical failures have the potential to be catastrophic. As such, any penetration, manipulation, or disruption to the networks driving global supply chains could result in a sudden loss of billions of dollars.
Today, global supply chain leaders are investing heavily in technology and personnel needed to defend against these attacks and to rebound quickly in the event of unwanted intrusion.
9. Evolving Environmental Standards
As noted above, supply chain leaders must grapple today with a rapidly growing set of overlapping regulatory regimes. But there is perhaps no regulatory issue with greater implications for the supply chain industry than our evolving environmental standards.
Under the terms of the so-called “scope 3 emissions control” standards, those in the shipping, trucking, packing, and delivery industries will be required to adhere to an increasingly stringent set of rules around the use of fossil fuels and more. Many in the shipping industry are working hard to adjust to these standards by updating machinery, vehicles, and procedures.
KPMG notes that “In 2023, regulators and other important stakeholders (such as customers and the finance community) will likely demand a focus on scope 3 emissions control. You may be expected to make informed decisions to reduce these emissions, and ‘greenwashing’ will not pass scrutiny. Adding to the pressure will likely be a shift in investor activity towards organizations that can prove their scope 3 emissions are low.”
In other words, one of the most compelling reasons for supply chain companies to achieve compliance with these rising environmental standards is because they can improve their public standing with prospective investors. This may help to offset what some companies may view as the costly burden of achieving compliance.
10. The Impacts of Climate Change
Entirely separate from the cost of achieving compliance with evolving environmental standards is the reality facing global supply chain managers. Namely, global climate change is already having real and profound impacts on the global supply chain.
According to RF Gen, “Climate change poses increasingly significant challenges for supply chain management. 2023 may be a difficult year, but the years to come will likely prove more difficult yet. Businesses will have to grapple with the consequences of extreme weather events, resource scarcity, and shifting regulations.”
For instance, the increasing severity and growing length of hurricane season in the Gulf of Mexico means that U.S. states like Texas and Louisiana are experiencing extreme weather events with greater frequency and intensity. In 2022, these extreme weather events resulted in ongoing disruptions to the production of propylene oxide, a chemical commonly yielded by industries concentrated in these states.
The compound is essential to the process of making foam. In its absence, cushion production was stifled on a global scale. This is just one example of how the real and tangible consequences of climate change in one location can be felt throughout the global supply chain.
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Unless you’re a logistics professional, it’s likely that your greatest interest in the supply chain revolves around how these issues are impacting the bottom line for your household. After all, these disruptions tend to have far reaching effects. While you may still be able to find what you’re looking for on the shelves at your local store–or at least on Amazon–you might also notice that it costs more than you remember.
Obviously, we have no control over the macroeconomic factors conspiring to raise the prices on all of our most basic necessities. But if you are a savvy consumer, you can at least take steps to reduce your everyday expenses. Counteract the big stuff happening in the global supply chains by focusing on the little stuff.
Start with a look at our article on how to save money when shopping online.