A Brief Explanation of the Supply Chain Quagmire - Dirigo Collective | Media Company
Aerial photo of shipping containers on ship in port with "Supply Chain Quagmire" in water

A Brief Explanation of the Supply Chain Quagmire

As the holidays inch closer, consumers find themselves dejected, frustrated, and paranoid with the massive disruption in the supply chain affecting every aspect of life. Empty shelves, sky-high prices, shipping delays with only weeks until the gifting season wraps up; it feels like we’re waiting for a storm that’s already touched land. 

With no end in sight, fully understanding the factors that caused this unprecedented disturbance in the supply chain may prove to be the only way to prevent this global quagmire from happening again. 

How it started 

It all starts with COVID. During the early stages of the pandemic, massive factories in places like China, South Korea, and Vietnam were forced to shut down production because of sick workers and lockdown protocols. Anticipating a sudden drop in the transportation of goods around the world, shipping companies dramatically cut their schedules to make the best of a bad situation. 

As economies worldwide began locking down, demand goods slumped as ocean carriers canceled well-worn shipping routes, displacing workers and limiting supplies globally. The ensuing staggered reopenings of businesses and schools in the U.S. and abroad only exacerbated the problem, severely throwing an already imbalanced supply chain off its path. 

“In spring and early summer of 2020, consumer demand and manufacturing output plummeted,” says senior counsel and litigator with Foley & Lardner, Nicholas Ellis. “What we then experienced was a kind of ‘whiplash’ as demand rapidly recovered and companies tried to refill the pipeline of material and components.”

When you factor in obstacles like the Great Resignation and China’s zero-tolerance COVID policy (which closes off its ports to the rest of the world) things aren’t looking great for the holiday season. 

“​Tens of thousands of items – including furniture, appliances, and other non-perishables – are sitting in ports waiting to be unloaded and shipped,” says CEO of Overstock.com, Jonathan Johnson. “Everyone has been impacted in some way by the supply chain delays and many consumers are experiencing the impact firsthand.”

Why is everything so expensive?

Ian Sells is the co-founder and CEO of RebateKey – an owner of several Amazon brands which are directly imported from China. Ian’s also an Commerce expert and helps sellers build and track campaigns to boost their rankings on online selling platforms like Amazon. Ian points to the growing pressure on manufacturers (especially local manufacturers) because international shipping is forcing people to shift to domestic suppliers. 

This sudden demand for goods coupled with the need to price match cheaper imported items is putting a strain on local economies as well. Business Insider reports the sudden demand of goods is the equivalent of 50 million Americans suddenly joining the economy

One industry feeling the brunt of this infernal disruption? Computers. You can’t find computer chips anywhere. 

“Computers and related supplies have a high demand due to the shift to online setup of most industries including work and education,” starts Sells, “Likewise, medical supplies and medications are needed across the globe. Since a lot of people are staying at home, there is a rise of the demand for food deliveries, causing a shortage of food packaging and other related items.” Sells believes people should only be buying what’s essential, but realizes both suppliers and customers have the tendency to hoard items – a contributor to this worsening cycle of bottlenecking in the supply chain.

“We cannot stop people from buying during the holidays – especially since staying home increases the likelihood for people to do online shopping,” adds Sells, “However, I would advise buyers to do two things: buy early and buy locally. Buying early and buying locally ensures that your items won’t get stuck somewhere in the supply chain. It’s also less likely for people to get tempted with the many holiday promos and sales that will come during peak seasons.” 

So, what’s next?

It’s going to take time to fix this problem and a lot of it has to happen from the top down. President Biden recently announced the Port of Los Angeles would stay open 24 hours a day in an effort to help alleviate the congestion. 

Treading water in such choppy and uncharted waters is putting the ad industry in a tricky position, leading brands to reallocate or entirely cut their holiday spending. The WSJ recently reported that Hershey’s had to curb third-quarter marketing spending because of supply-chain issues. 

A digital marketing agency called Adtaxi recently released the results of its 2021 Holiday Outlook survey, which examined consumer response to the pandemic entering the holiday season. They found that two-thirds (64%) of respondents feel comfortable shopping in-store this holiday season with one-third planning on spending up to 75% of their holiday dollars online. 

People still want their stuff. And that leaves everyone else in a tricky position – especially with the holiday season en route. 

“Given the state of the industry and the unknowns for when the supply chain backup will clear, your safest bet for holiday gifting is to shop early,” adds Overstock CEO, Jonathan Johnson. “Any industry that uses the supply chain is being affected – and that includes retail.”