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The Global Supply Chain Crunch Explained

November 18, 2021

The pandemic has disrupted nearly every aspect of the worldwide supply chain network. The supply chain is the pathway of manufacturing, transportation and logistics that gets goods from where they are manufactured or processed to where they are going. Modern supply chains are very complex, often spanning multiple countries and involving many steps, starting with the sourcing and processing of raw materials all the way to delivering the final product to the consumer.

Disruptions to the global supply chain at the onset of the pandemic caused persistent shortages of PPE in particular, including Medical Masks, gloves, gowns, N95 respirators, cleaning supplies and other critical care hospital equipment. While conditions have eased somewhat over the past few months, the situation continues to dog the world economy as businesses work to regain equilibrium.

Factory Shutdowns

The disruptions go back to early 2020, when factories in parts of the world where a lot of manufacturing capacity is concentrated – including China, South Korea, Taiwan, Vietnam and Germany – were impacted by the spread of virus. China was particularly hard hit and the country’s zero tolerance policy for the virus led to the shut down of a major shipping terminal, which slowed traffic at many other ports. Rolling power outages also closed factories across China.

As factories shut down or were forced to reduce production, the output of nearly every commodity was affected, from electronic components and chemicals to new cars and trucks. In response, shipping companies cut their schedules in anticipation of a drop in demand for moving goods around the world.

Consumer Goods Buying Surge

At the start of the pandemic, consumers were panic hoarding, purchasing up all existing inventory of products like toilet paper and hand sanitizer – but purchasing very little, if any, other products. As a result, factories and their supporting supply chains adapted to meet the demands of the moment.

As the pandemic took hold, and people found themselves unable to go out, households suddenly shifted their spending to goods from services. With the money saved by skipping restaurant meals, movie outings, and vacations, people bought new furniture, built out home offices, and upgraded computers, phones and TVs. Government pandemic relief assistance helped fuel the shopping spree. The steep surge in demand clogged the system for transporting raw materials and components to the factories that needed them. At the same time, finished products piled up in warehouses and at ports.

There is no telling how long the current surge in demand will continue to outpace supply, but as the supply chain experiences shortages in everything from microchips to chlorine, prices are anticipated to continue to increase. Economists widely expected that, as the pandemic faded, people would revert to their former spending patterns but that hasn’t happened yet.

Shipping Container Shortage

Once international trade screeched to a near-halt in April 2020, empty containers were no longer being collected and sent to spots where they could be used again. In the first phase of the pandemic, as China shipped huge volumes of protective gear like masks and hospital gowns all over the world, containers were unloaded in places that generally do not send much product back to China. Empty containers piled up just as factories were producing the surge of other goods destined for markets in North America and Europe.

More than a year later, shipping companies already hit with a loss of return shipping container capacity are still trying to get containers to ports where they are needed most. Because containers are scarce and demand for shipping has become more intense, the cost of moving cargo has increased significantly.

Distribution Bottlenecks

The unprecedented tsunami of goods has overwhelmed the ability of destination ports to unload, warehouse and transport it all. There are only so many berths where cargo ships can dock, and only so many cranes to unload them. There are only so many trucks that can enter and exit a port facility at one time, and only so many warehouses where goods can be stored.

Part of the issue is that global supply chains are only designed to operate at peak capacity for a few months of the year, usually in the lead-up to the holiday season. Ports and warehouses have traditionally worked through any backlogs during slower seasons.

Manpower Shortages

There are also only so many trained dock workers or truck drivers available to unload, warehouse and transport goods. Companies are struggling to hire workers as long as the virus infection risk persists, and federal and provincial benefits, as well as childcare obligations, could also be preventing many workers from re-entering the labour force right away. In addition, a growing number of workers are quitting their jobs, retiring or changing careers as a side effect of the pandemic.

The shortage of dock workers, combined with the shortage of trucks, combined with the shortage of truck drivers has created a scenario where scarcity in one part of the supply chain leads to scarcity in another part, which ultimately leads to more shortages and increased prices.

Volatility Likely to Continue

The global pandemic has made supply and demand extremely volatile, shifting faster than the supply chain can adjust. This has come on top of decades of very lean inventories kept by companies to limit costs. Manufacturers are working to restock the already lean inventories of distributors and retailers around the world that were depleted during the pandemic.

Experts disagree on when the supply chain crunch will end, but virtually none say it will be very soon. Estimates range from early next year to 2023.

MHCare Medical offers protection and infection control products for doctors, dentists, hygienists and other medical and dental professionals and prides itself on the vast supply chain network established at the beginning of the pandemic. Contact us today to learn more.

*This article is not meant to be taken as medical advice. Please follow the advice of your local health authorities when making decisions about your own health and the people around you.

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