Main reason for supply shortages: Americans continue to spend

DETROIT (AP) – Take a step back from picked-up store shelves, stalled container ships, and empty auto showrooms, and you’ll find the root cause of shortages in just about everything.

Even as the pandemic dragged on, US households teeming with cash from stimulus checks, booming stock markets and rising home equity became eager to spend freely again – a lot. And because consumer demand drives much of the US and global economies, strong demand has resulted in shortages of goods in the United States and much of the world.

Add in the fact that companies are ordering – and hoarding – more merchandise and parts than they need so they don’t run out, and you end up with almost unquenchable demand that amplifies supply shortages.

This is where a big problem comes in: Suppliers have been caught so off guard by how quickly pent-up spending has come out of the recession that they likely won’t be able to catch up as long as demand remains. also robust. This is especially true as Americans, even more squatting at home than before the pandemic, continue to spend more on goods – electronics, furniture, appliances, sporting goods – than on services like hotels. , restaurant meals and movie tickets. All this demand for goods, in turn, is helping to accelerate US inflation.

Unless spending suddenly reverts to services – or something else causes people to stop buying so much – it could take until 2022 or even 2023 before global supply chains regain some semblance. of normality.

“The demand is completely skewed,” said Bindiya Vakil, CEO of Resilinc, a consulting firm that helps companies manage supply chains. “It has now become more and more painful by the day. “

One of the reasons people can eventually stop spending so much is that everything just costs more now. Consumer prices in the United States have climbed 6.2% in the past year as food, gasoline, automobiles and housing catapulted inflation to its highest rate since 1990 The laws of gravity suggest that the cumulative effect of such inflation will ultimately dampen spending.

For now, however, manufacturers do not foresee an end to strong demand – and no end to besieged supply chains or mounting inflationary pressures. A chronic shortage of computer chips has forced Ford Motor Co., for example, to revamp its system for ordering parts that require long periods between ordering and delivery in an attempt to address shortages.

“It is emphasized that the ‘just in time’ operating model prevalent in automobiles may not be the right operating model,” Hau Thai-Tang, director of operations and products, told analysts. from Ford.

Small businesses also felt pressured to put together as many supplies as possible so that they could continue to manufacture products. Moriarty’s Gem Art near Chicago, a family-owned business for 40 years, sources gold, silver and platinum to make necklaces and rings, desperately trying not to run out of supplies as holiday orders resume.

“We order a lot more than what we actually have orders for – just in case,” said Jeff Moriarty, Marketing Director.

Even a normal lull in post-holiday shopping, while it may help, shouldn’t be enough to unclog ports, speed up shipping, or allow factories to replenish stocks.

“Baseline expectations for improvement are around mid-2022,” said Oren Klachkin, chief US economist for Oxford Economics. “But I think the chances of that happening later are pretty high.”

Although Americans have increasingly ventured out in recent months, the balance between spending on goods and services remains skewed. The pent-up demand that followed the economic recovery is still oriented towards goods like furniture and cars and less towards haircuts, concerts and dining out. Although spending on services has increased in recent months, it is nowhere near enough to close the gap.

Since April 2020, consumer spending on goods has jumped 32%. It is now 15% higher than it was in February 2020, just before the pandemic crippled the economy. Goods currently account for around 40% of consumer spending, up from 36% before the pandemic.

American factories have tried powerfully to meet demand. Production has grown nearly 5% in the past year, according to the Federal Reserve, despite periodic ups and downs, including disruptions to auto production caused by chip shortages.

Imports have narrowed the gap between what American consumers want and what its factories can produce. From January to September of this year, the United States imported 23% more than during the same period in 2020. In September, thanks to the surge in imports, the United States recorded a record deficit in the merchandise trade: Imports exceeded exports by $ 98.2 billion.

The voracious demand for goods has accelerated as more people have been vaccinated in richer countries. Yet in poorer countries, particularly in Southeast Asia, the spread of the delta variant has forced further plant closures in recent months and has crippled supply chains again. It was only recently that he began to recover.

At the same time, many American workers decided to quit jobs that required frequent public contact. This created shortages of workers to unload ships, transport goods or staff retail stores.

The ports are blocked. Last month, 65 ships waited off the coast of California to be unloaded at the ports of Los Angeles and Long Beach – the equivalent of two weeks of work. The average wait: 12 days. This has since worsened to 78 ships, with an average wait of almost 17 days, despite 24-hour port operations starting in October.

Before the pandemic, ships had scheduled arrival times and proceeded directly to a berth for unloading, said Gene Seroka, executive director of the Port of LA. Now, with the output of Asian factories at record levels, the port is transporting record levels of cargo. Yet this is not enough to meet demand.

Seroka doesn’t expect shipments to slacken even next year. Retailers told him they plan to use the slower months of January and February – if they’re actually slower – to replenish inventory.

As with ports, rail lines carry more goods. Until early November, freight shipped by US railways was up 7.5% from a year ago. Truck deliveries rose 1.7% in September. Yet there are not enough drivers or trucks to carry all the freight.

In China, too, manufacturers are grappling with shipping delays, container shortages and cost increases. Shantou Limei International Ltd., which makes children’s toys in the city of Shantou, expects sales to drop 30% this year due to delays and more expensive shipments.

“The most serious problem for us is not being able to deliver the goods on time due to the difficulties of securing the freight containers,” said Frank Xie, general manager of the company. “A lot of things have exceeded our controls and our expectations.”

Philip Richardson, an American who manufactures loudspeakers in Panyu, near Hong Kong, said orders were up 400%. One of the main reasons is the increase in demand from Americans and Europeans, who have embarked on a frenzy of buying home electronics. Meanwhile, the price of shipping goods to US customers in a 40-foot container more than tripled in July.

“The customer has to support it or reduce their orders,” Richardson said.

Song Wenjie, owner of Hand-in-Hand Electric Appliance Technology Co., a maker of household appliances in Jiaxing, south of Shanghai, said soaring freight prices make shipping some goods unprofitable.

“The combination of power outages and shipping delays could lead to a 20% drop in production this year,” Song said.

Among European companies struggling with harassed supply lines is Shoe Zone, a UK retailer that buys most of its shoes in China. Prices for shipping containers have increased at least fivefold in 12 months, said Anthony Smith, chief executive.

“This will continue to affect us for at least six months until the problems across the supply chain return to more reasonable levels,” he said.

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Wiseman reported from Washington. Joe McDonald and Yu Bing in Beijing, Kelvin Chan in London, and Mae Anderson in New York contributed to this report.

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