If 2020 was defined by the pandemic, 2021 is being defined by over-stressed supply chains and widespread labor shortages. While the pandemic didn’t singlehandedly create these conditions, it’s a prime factor in their severity and duration.
And things don’t look to be improving anytime soon.
As a testament to the ongoing chaos in the global economy, delays, product shortages, and rising costs continue to hamper businesses large and small. The result is that consumers face a situation they’ve never had to confront before: the reality of unavailable goods and no idea when they will come in.
The driver shortage has also been a well-publicized problem in the logistics industry for quite some time. But it’s far from the only staffing issue. Throughout the supply chain, warehouses, manufacturing plants, factories, retailers, and companies are seeing a labor shortage. This, combined with unrelenting freight increases and capacity issues, has the supply chain suffering widespread adverse effects.
So, what caused the labor shortage?
As with most issues as far-reaching as this, there is no one-size-fits-all answer. But there have been several contributing factors.
COVID certainly played a role.
To say that COVID-19 struck a blow to the U.S. workforce would be an understatement. Estimates suggest that roughly 9.6 million Americans suffered a job loss as a result of the pandemic.
That wasn’t just bad for American workers — it was devastating for the economy. Since millions of people suddenly found themselves with no disposable income, the economy began to take a downturn. And despite the slight reprieve offered by government stimulus checks, millions of Americans found themselves unable to pay for basic amenities. That led to a record-setting number of people applying for unemployment benefits — a factor with a consequence all its own.
Expanded unemployment payments and demands for better compensation.
At the height of the pandemic, the U.S. government offered enhanced unemployment benefits to help workers forced out of their jobs. However, as the supply chain began to pick back up, many of these workers have remained off the job because they’re making more at home. Even after vaccinations started and America began opening up again, many workers didn’t return to their old jobs, citing a lack of fair pay.
Employers, however, have been hesitant to increase pay rates, based on the argument that higher pay would lead to fewer jobs and closed businesses.
Couple the increase in unemployment pay with the closure of schools, and many people have found it more advantageous to be at home with their children rather than pay for childcare programs. This may change, though, as states opt out of the additional unemployment payment from the federal government.
Impact on consumers.
While the supply chain and logistics industries are seeing their needs increase from the e-commerce boom, they struggle to meet that need due to the worker shortage. “There’s no shortage of demand from consumers, but there continue to be shortages of labor, equipment and shipping capacity to meet that demand,” said Jonathan Gold, Vice President for Supply Chain and Customs Policy at the National Retail Federation.
With manufacturers, distributors, and carriers all understaffed, there are not enough goods or ways to deliver the goods to meet consumer demand, resulting in higher prices for those items.
This means we’re living out a simple Economics 101 lesson on supply and demand.
Shipping times have surged.
Port delays and the lack of available containers have contributed to drastic increases in shipping times — more than twice what they were pre-pandemic. The backlog, coupled with labor shortages and pandemic-related shutdowns at every point in the process, has led to months-long waits for electronics, furniture, and other imports. And even once that merchandise makes its way to stores and warehouses, getting it to consumers’ homes creates another hurdle. And Americans are feeling these delays directly.
According to a recent Gallup poll, 60% could not acquire a product they needed this summer. Additionally, more than half of Americans experienced extraordinary delays in receiving an order, while 46% said they experienced both of these disruptions.
Prices continue to edge higher.
According to the same poll, 83% of consumers reported seeing price increases while shopping for products this summer. Retailers’ inability to keep up with consumer demand has directly contributed to these rising prices.
Shoppers are facing higher prices and fewer discounts when many are already rethinking their buying habits. Consumer sentiment fell sharply in August, to a 10-year low, according to a University of Michigan index. Overall inflation is up 5.4 percent from last year, with analysts predicting that prices will continue to creep up.
This combination of shipping delays and rising costs were already reshaping shopping patterns. But add to that the continued mutation of the coronavirus and the future becomes murky indeed. Given the Delta threat, consumers are expected to make fewer and shorter shopping visits to brick-and-mortar retailers, with indoor malls facing a particularly challenging holiday season. Moreover, with more consumers shopping online, retailers can expect lower margins due to increased product shipping and returns. Not to mention the limitations on in-store impulse purchases that are such an important part of holiday shopping.
A long road ahead.
More than 18 months into the pandemic, global supply chains appear more vulnerable than ever. With the vital fourth quarter upon us, retailers need to understand the impact these supply chain challenges will have on their businesses as they enter the most crucial selling season of their year.
At Gorgo Group, we help our clients find the right solutions — for themselves, their customers, and their future. Reach out today and help your company weather these and other possible future logistic challenges.