Why are global supply chains breaking?

In the current era of consumerism and same-day shipping that so often dictates spending habits, it may seem hard to imagine businesses in all industries attempting to cope with delayed shipments and rising costs for normal, everyday products. But that is exactly what business owners have been forced to do since the pandemic and natural disasters have accelerated supply chain woes across the globe. For Cheri Hochstetler, owner of Dwell Home Furnishings and Interior Design in Coralville, these troubles are not going anywhere. “I think it’s worse now than it was six months ago,” she said. “It is not getting better at all.” The supply chain is simply the network that takes a product from the supplier to the final distributor before purchase. For years, supply chains operated on a reasonably consistent basis where businesses could predict when they could expect to receive and deliver goods with relative certainty. However, if one component of this interconnected system slows down — or even worse, shuts down — businesses are thrown into havoc, said Scott Grawe, chair of the supply chain management department at Iowa State University. Despite experiencing a surge in demand in the aftermath of COVID-19 (many individuals forced to stay at home decided it would be a good time to invest in home living), Ms. Hochstetler has experienced this as much as anyone. In February 2021, a massive ice storm swept through Texas, killing at least 237 people and causing more than $20 billion in damages. The storm knocked out oil refineries for days, directly affecting upholstery, mattresses and fabric goods since foam is a petroleum product. Local businesses like Dwell Home Furnishings and Luxe Interiors suddenly experienced a trickle-down effect. Foam-producing companies could no longer rely on petroleum companies, thus forcing upholstery businesses behind schedule. Imported furniture from abroad also increased nearly 25% due to slower-than-usual shipping containers and high tariffs. Couple these reactions with workers across all levels of the supply chain leaving their jobs due to health safety concerns or simply desiring new opportunities, and production grinds to a near-standstill, said Jan Finlayson, owner of Luxe Interiors. Lead times that typically were eight weeks now last 20 to 25 weeks said Ms. Hochstetler. Beyond foam, a quick Google search will show results for shortages in lumber, meat products, truck drivers and just about anything else. “Probably the most famous one right now is computer chips,” said Frank Montabon, professor of supply chain management at Iowa State. Computer chips are in a lot of products, particularly in the automotive and home construction supply chains. A lack of computer chips makes it harder to buy new microwaves, refrigerators and stoves when renovating a house. This new reality of product shortages is sparing few businesses. As the pandemic started to shut down the world at different times, freight sat unused for extended intervals in “rolling shutdowns,” as Mr. Grawe called them. If a container ship from China sits near the United States during a shutdown, by the time the ship is emptied and returns to China, there’s already a huge backlog. This forces manufacturers in China to slow down production until containers are available. Once the shipping containers are back, they can command premium prices. Larger companies are willing to pay more – driving the cost of a container from $5,000 to upwards of $20,000 while small businesses are left to wait. “In a supply chain, nothing ever happens in a vacuum,” said Mr. Montabon. “Everything is interconnected. I think the challenge right now is companies feel like they don’t know where problems are going to arise. The unpredictability is always out there, but it seems like the unpredictability has increased all over the world.” Earlier this year, the Suez Canal — a waterway that carries 12% of the world’s trade — was infamously blocked by the Evergreen boat, a giant container ship the size of four football fields that was stuck and not moving. One of China’s biggest ports closed due to a single worker infected with the Delta variant just one month ago. Feelings of uncertainty aren’t exclusive to businesses, as Iowa Solar Energy Trade Association President Lewis Butler soon found out. Commodity prices for steel and aluminum have increased dramatically in the solar industry, despite prices lowering each quarter for years before supply chain issues emerged. As a result, consumers are questioning when to invest in renewable energy. “A lot of people want to do a solar project for environmental reasons, but the financial element is still a piece of the equation,” he said. “There’s some hesitation that prices will go down in the future, so when this uncertainty is introduced, it creates a longer cycle, and it causes projects to be delayed. “If you’re a residential consumer and you’re looking at a $20,000 project, all of a sudden, it’s a $23,000 project,” he added. “That might cause people to pause.” Demand is high in the independent bookstore space – higher than before the pandemic. According to Jan Weissmiller, owner of Prairie Lights Books & Cafe, print book sales are up 20% this year at her store. But supply chain troubles persist here as well. “There seems to be a shortage of people working in paper mills,” she said before mentioning the effects of those who have hoarded toilet paper and paper towels. “The situation is extraordinary, so we’re just planning to order a heavier frontlist than we have in the past.” Customers looking to buy a book for the holidays may want to begin now, said Ms. Weissmiller. Publishers are warning that delays will ramp up. When will this web of headaches end? Unfortunately, there’s no good answer, and it will vary based on product and industry, said Mr. Montabon. “If you need something with computer science, you’re probably looking at some problems for a while,” he said. “If you’re looking at something with lumber, you might be okay. That’s not even factoring in potential political issues.” For businesses to survive the market recalibration that is destined to happen, however, they can do a couple of things, according to Mr. Montabon. Stores should develop even stronger relationships with suppliers to understand their challenges and how they relate to their business. Companies should also develop disaster plans that give a roadmap for dealing with worst-case scenarios like when raw material is no longer available in one part of the world. They’re not perfect solutions, but in the volatile circumstances business owners find themselves in today, perfect solutions, unfortunately, don’t exist, said Mr. Montabon.