By TOM KRISHER and PAUL WISEMAN AP Business Writers
DETROIT (AP) – Take a step back from the selected store shelves, the locked container ships and the empty car showrooms, and you will find a fundamental reason for the lack of almost everything.
Although the pandemic has dragged on, US households, flushed with cash from stimulus checks, booming stock markets and expanded housing capital, have wanted to spend freely again – a lot. And as consumer demand drives a large portion of the U.S. and global economies, high demand has brought shortages to the United States and large parts of the world.
Add to that the fact that companies order – and stockpile – more goods and parts than they need so they do not run out, and you end up with an almost indelible demand that magnifies the supply shortage.
This is where a big problem comes in: Suppliers were caught so flat-footed by how quickly accumulated consumption rose out of the recession that they are unlikely to be able to catch up as long as demand remains so robust. This is especially true because Americans, who still sit at home more than they did before the pandemic, continue to spend more on goods – electronics, furniture, appliances, sporting goods – than on services like hotels, meals out and movie tickets. All that demand for goods, in turn, is accelerating US inflation.
Unless spending falls sharply back on services – or something else causes people to stop buying so much – it could take deep into 2022 or even 2023 before global supply chains regain any kind of normality.
“Demand is completely skewed,” said Bindiya Vakil, CEO of Resilinc, a consulting firm that helps companies manage supply chains. “This has now become more and more painful with each passing day.”
One reason why people end up spending so much is that everything simply costs more now. Consumer prices in the US have risen by 6.2% over the past year as food, petrol, cars and housing rocked inflation at its highest rate since 1990. The laws of gravity suggest that the cumulative effect of so much inflation will eventually put a brake on spending.
For now, however, producers predict no end to high demand – and no end to besieged supply chains or rising inflationary pressures. A chronic shortage of computer chips has forced Ford Motor Co., for example, to renew its system of ordering spare parts that require long periods from order to delivery to try to remedy deficiencies.
“It has been highlighted that the ‘just-in-time’ operating model that has been prevalent in cars may not be the right operating model,” Hau Thai-Tang, Ford’s operations and product manager, told analysts.
Even smaller companies have felt compelled to build up as many supplies as they can so they can still make products. Moriarty’s Gem Art near Chicago, a family business for 40 years, has filled up with gold, silver and platinum to make necklaces and rings, desperate not to run out of supplies as holiday orders rise.
“We order a lot more than what we actually have orders for – just in case,” said Jeff Moriarty, marketing manager.
Even a normal shopping break after a public holiday, though it may help, is not expected to be enough to empty ports, speed up ship traffic or allow factories to rebuild stocks.
“The baseline expectation for improvement is around mid-2022,” said Oren Klachkin, lead U.S. economist at Oxford Economics. “But I think the risk of that happening later is pretty high.”
Although Americans have increasingly ventured out in recent months, the balance between spending on goods and services remains skewed. The pent-up demand that followed the economic recovery is still tilting towards goods like furniture and cars and less towards haircuts, concerts and restaurant meals. Although spending on services has grown in recent months, it is not near enough to close the gap.
Since April 2020, consumer consumption of goods has increased by 32%. It is now 15% above where it was in February 2020, just before the pandemic paralyzed the economy. Goods account for about 40% of consumer spending now, up from 36% before the pandemic.
US factories have been trying hard to keep up with demand. Production has risen nearly 5% over the past year, according to the Federal Reserve, despite periodic ups and downs, including disruptions to car production caused by chip shortages.
Imports have narrowed the gap between what U.S. consumers want and what its factories can produce. From January to September this year, the US imported 23% more than in the same period in 2020. In September, thanks to rising imports, the US had a record-breaking trade deficit: imports topped exports with $ 98.2 billion.
The voracious demand for goods has accelerated as more people have been vaccinated in richer countries. But in poorer countries, especially in Southeast Asia, the proliferation of the delta variant has forced new factory closures in recent months and shrunk supply chains again. Only recently did it start to recover.
At the same time, many American workers have decided to resign, which had required frequent public contact. This created a shortage of workers to unload ships, transport goods or staff shops.
Gates clogged. Last month, 65 ships off the coast of California were waiting to be unloaded at the ports of Los Angeles and Long Beach – two weeks’ work. Average waiting time: 12 days. It has since deteriorated to 78 ships, with an average waiting time of almost 17 days, despite 24-hour port operations beginning in October.
Before the pandemic, ships had set arrival times and went directly to a quay to unload, said Gene Seroka, the port of the Port of LA. Now, with Asian factory production at record highs, the port is moving record levels of goods. Still, it is not enough to meet the demand.
Seroka does not anticipate that shipments will ease, even next year. Retailers have told him they plan to use the slower months of January and February – if they are actually slower – to rebuild stocks.
As with ports, the railway lines move more goods. At the beginning of November, freight from US railways increased by 7.5% compared to a year ago. Truck shipments rose 1.7% in September. Still, there are not enough drivers or trucks to move all the freight.
Also in China, manufacturers are struggling with shipping delays, container shortages and cost increases. Shantou Limei International Ltd., which makes toys for children in the city of Shantou, expects sales to fall by 30% this year due to delays and more expensive shipping.
“The most serious problem for us is being unable to deliver goods on time due to the difficulty of securing shipping containers,” said Frank Xie, the company’s general manager. “Many things have gone beyond our control and expectation.”
Philip Richardson, an American who manufactures speakers in Panyu, near Hong Kong, said orders have risen 400%. A key reason is increased demand from Americans and Europeans who have gone on to purchase home electronics. Meanwhile, the price of shipping goods to U.S. customers on a 40-foot freight container more than tripled in July.
“The customer has to carry it or cut back on orders,” Richardson said.
Song Wenjie, owner of Hand-in-Hand Electric Appliance Technology Co., a manufacturer of household appliances in Jiaxing, south of Shanghai, said sky-high cargo prices make it unprofitable to ship some goods.
“The combination of power outages and shipping delays could lead to a 20% drop in production this year,” Song said.
Among European companies struggling with convoluted supply lines is Shoe Zone, a UK retailer that picks up most of its footwear from China. Shipping container prices are at least fivefold in 12 months, said Anthony Smith, CEO.
“This will continue to affect us for at least another six months until the problems experienced throughout the supply chain return to more reasonable levels,” he said.