Natural disasters, shortages of materials, demand imbalances, political and regulatory changes are all common reasons for supply chain disruption. But ever since the initial outbreak of COVID-19 forced stay-at-home orders, the pandemic has created record-setting disruptions that have triggered a global economic slowdown and supply chain crisis.
Global supply chains and shipments slowed as a result of the pandemic in 2020, triggering worldwide shortages of many goods and disrupting consumer patterns. The first wave of supply chain shortages involved PPE and everyday consumer products such as toilet paper.
The global supply chain crisis has roots in the 2020 slowdown, which included mass layoffs and shutdowns to production lines worldwide. During 2020, world output shrank by 4.3% – three times more than during the global financial crisis of 2009, as recently reported by the United Nation’s DESA Economic Analysis and Policy Division.¹
The ripple effects of these shifts and imbalances in demand and supply continue in 2022. By the time the pandemic was entrenched in 2021, consumers had to wait months for durable goods and many are still waiting for certain models of appliances, electronics, and vehicles.
The Asia-Pacific region, where many production centers are located, lost about 81 million jobs in 2020 compared to pre-crisis levels, according to the International Labour Organization.² Approximately 42% of supply chain management worldwide originates or ends in Asia, according to IT and business services firm NTT DATA.³
In China, a top production country, factories were among the first to shut down during the initial outbreak in the first quarter of 2020, and only slowly came back online until surges in subsequent waves of COVID-19 added to the problem. As the pandemic spread, ocean carriers reduced their capacity with fewer vessels to stabilize costs and avoid rate erosion. This put a major crimp on imports and exports, and empty shipping containers began piling up in import-reliant regions.
In 2021, these difficulties peaked into a full-blown global supply chain crisis. Demand surges, capacity shortfalls, labor shortages and production shutdowns caused by storms and the temporarily blocked Suez Canal in March all exacerbated existing problems.
Backlogs at ports and production centers, mostly concentrated in Asia, couldn’t keep up with recovering demand, and large shippers and importers who could afford it resorted to chartering their own ships and planes to ensure timely delivery at their own distribution facilities.
In the U.S., the backlogs at port terminals due to the extreme surges in import volumes were worsened by labor shortages and the health & safety restrictions of COVID-19. While strained transportation networks and bottlenecks peaked in 2021, such disruptions are continuing into 2022. As the pandemic drags on, supply chain issues have shifted from surging demand for finished goods to raw material and commodity shortages as diverse as sugar, adhesives, semiconductor chips, electrical equipment, and construction materials.
By 2021, the empty shipping container problem worsened, notably in North America, while China lacked empty containers as exports came flooding out of Asia following restarted production lines. On any given day during the summer, dozens of ships carrying containerized cargo from Asia were anchored at sea outside the ports of Los Angeles and Long Beach. These sprawling ports make up the San Pedro Bay Port Complex that processes about 50 percent of all U.S. imports from Asia, according to PIERS, an IHS Markit firm.
Long dwell times for full containers on the docks, often over 10 days, increasing volumes of empty containers awaiting shipment back to Asia, and congested warehouses are adding to the current backlogs at West Coast ports.⁴
Parcel carriers managed to pull off the 2021 holiday shipping season with less delays than previous years. Consumers did their part, too. Armed with warnings of supply chain problems, U.S. shoppers started their 2021 holiday shopping early. Packages delivered by UPS, FedEx and USPS to residential addresses were largely on time, according to ShipMatrix. Packages arrived with minimal delays, defined as a few hours late for express packages and no more than a day late for ground shipments.⁵
In our next blog on supply chain issues, we’ll look at the supply chain outlook for 2022 and beyond.