Why is the World Full of Shortages?
Everyone's been talking about supply-chain issues but what's causing them?
It seems nowadays that the world is full of shortages. Every day there is a new story about some shortage or the other. Don't believe us? Well, we covered it recently! (Tomato shortage and Power Shortage).
The root cause of the problem? The Covid-19 pandemic (duhh!). And, a lot of bad luck.
But, what exactly happened?
The Story So Far
Not too long ago, with the onset of the pandemic, we all started panic buying and hoarding sanitisers, handwashes, and pretty much everything else under the sun. Now, obviously, the companies that were manufacturing all the stuff did not see that coming. And before they could ramp up production, Covid had shut down factories or limited the number of people working in them.
Also, several manufacturers relied on imported raw materials from other countries, especially those in Asia, for production. Many of these countries closed down ports, further stalling supplies.
But yaar, lockdowns are almost over, right? And most factories have opened up. So, what is the issue now? Why is this supply chain crisis not ending?
"Yeh supply crisis khatam kahe nahi hota?"
The Current Problems
Since the lockdowns forced us to stay at home and basically put an end to all social activity, people ended up saving a lot of money. In fact, Americans ended up saving almost $90 billion just by not commuting!
Oh, how our wanderlust soul dreamt of taking vacations, wearing those stunning outfits, and celebrating life when the world finally opens up!
And when the world did open up, that’s exactly what we did: revenge shopping for all the time lost being stuck at home. This again increased the demand for goods and the pressure on the supply chain just as it was starting to recover.
Also, because of a shortage of port workers and truck drivers, 77% of ports around the world have seen an increase in the time taken to unload goods. This means shipping containers began taking even longer to deliver goods. Huh? Why is there a shortage of workers now?
You see, the long hours of the job and the nomadic lifestyle of a truck driver don't appeal to many. Yet for so long, the industry had somehow managed. After all, there was always someone desperate enough to do the job.
However, Covid closed down commercial truck driving schools preventing even those who would have considered the job, from entering the industry. And when the economy opened, there were better job openings, so potential truck drivers and port workers changed their career paths.
But a shortage of labour was not all. There was one more shortage.
Shortage of containers. The shipping industry rushed to build more containers, but there wasn't enough lumber or steel to create the number of containers required.
To make things worse, a container ship called Ever Given got stuck in the Suez Canal this March. It blocked a route through which 12% of all global trade is conducted. For each hour that the ship was stuck in the canal, the supply of $400 million worth of goods was disrupted!
And the ship was stuck for six days. This led to a domino effect that has kept increasing the delays in supplies. These delays meant that shipping containers couldn't be in the right place at the right time.
This made them a prized commodity, with major exporters getting into bidding wars to get their hands on them. So much so that the price of containers has gone up by 283% since last year!
All this has served to increase the prices of goods, harming consumers like you and me and slowing down global economic recovery.
So, how long will this crisis go on?
Possible Solutions
Many experts and business leaders believe that it will take until 2022 for the crisis to resolve, mainly because there is no quick fix. The supply chain issues have been present for decades and the need of the hour is to rebuild the supply chain and make it more robust and resilient.
One way to do this is to modify the just-in-time inventory system. Since warehouses cost a lot of money, many manufacturers have adopted the just-in-time system. This means they work closely with suppliers to make sure that they get products right when they are needed. Just-in-time. Neither too early (would block capital), nor too late (would stall production).
But like our parents told us, leaving things to the last minute can get you in trouble. So, the manufacturers had no supply of components to fall back on when the shortages hit (this is mainly why the semiconductor shortage had such a massive consequence).
We live in a risky world. If this system could be modified a little to ensure that manufacturers have some buffer stored for a rainy day, it could hypothetically prevent shortages.
But, as they say, we can only connect the dots looking backward. Maybe the pandemic will serve as a lesson to hedge more, risk less. Or maybe not.
Who knows?
Until next time, ReadOn.
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