Supply chain disruptions have been in the news lately, with companies reporting historic delays in getting their products to market. But what is behind this spike other than higher demand?
In this video from “The 5” on Motley Fool Live, recorded on October 4, Fool.com contributors Brian Withers, Rachel Warren and Demitri Kalogeropoulos share their perspective on these issues.
Brian Withers: I have forwarded this list to these teams and I want to see one of these lists that you are particularly interested in. Since it’s your first time, I’ll just throw you in the deep end, Rachel, and we’ll put it first [laughs]
Rachel Warren: I’m excited. [laughs] It’s a really interesting list. I’m moving away in particular from a point you mentioned about supply chain disruptions. I’m really interested to see what’s going to happen in terms of some big US numbers. We are like the first importer of products in the world. This is obviously an area that has been greatly affected.
The disruptions to the global supply chain that we are seeing on an unprecedented scale since the start of the pandemic. I think this is a trend that is probably not going to go away any time soon. I think the hope is that over time it wears off. I think that’s what people are hoping to see in some of these numbers coming out this month.
I’m sure I’m not the only one in this case, but one of the things that really concerns me is what exactly is driving these disruptions to the global supply chain. We hear a lot of people talking about it. But maybe for your average layman like me, I was like, well, what exactly is driving that? Just so I understand, like when I go to the store and my coffee creamer [laughs] costs more.
Why is that? [laughs] I need to know.
Obviously, there is this basic idea that the supply chains around the world have been disrupted due to the pandemic, demand has stagnated. Now it is growing exponentially again and the supply chain is struggling to meet that demand. There is so much data available that it can be difficult to understand exactly what is causing these disruptions. Now you worry about the duration of global supply chain disruptions extending into the holiday season. There is talk that retailers are going to have a toy shortage with such high demand and all these different delays in the supply chain.
I did a little research and found this to be a really interesting report from a supply chain risk watch company called, I’ll say the name but it’s Resilinc, I think that’s how you say it. It was a really interesting report and I was going through it and found some interesting points that may help explain why we are seeing what we are seeing and might share some clarity when these import numbers are released. Supply chain disruptions due to supply shortages increased 638% in the first half of this year, according to this report. This was led by shortages of items like plastics and semiconductors.
The United States is one of the world’s leading importers of semiconductors. The top 5 disruptions from the names reported were factory fires, number 1, mergers and acquisitions, number 2, number 3, commercial sales, number 4, factory disruptions and number 5 , the leadership transition. I don’t know about you, but some of them really surprised me, especially in mergers and acquisitions.
But it’s interesting that factory fires were the number 1 cause of supply chain disruptions in the first half of this year. Factory fires in the first half of this year are up 150% compared to the same period last year. You may remember, for example, that great fire in Japan that impacted the global supply chain for computer chips.
The report also noted that disruptions to human health, for example the corona virus, were among the top 20 events causing these disruptions. The current pandemic has had a huge impact on imports. You hear stories of freighters being late at these big ports like LA, you see things like worker shortages, ongoing COVID health protocols slowing the process, and workers testing positive causing disruption.
You hear about ships turning around because someone on board has tested positive for COVID and they need to turn around. There was a story in August where the world’s third busiest commercial port in this major Chinese city closed for two weeks due to a worker testing positive for COVID. Of course, this has affected huge slots around the world.
They think they have all of these factors in play and the fact that the United States is the number one importing country in the world, it really makes sense of what is happening on the ground here at the docks with the labor shortages- work and the COVID situation, as well as what’s going on overseas in these major ports, cities have a very big impact on what you see in consumers, which could help shed light on what we see, even if it’s not something that we appreciate when we go to buy daily products.
Demitri Kalogeropoulos: Yeah, I like it.
Warren: What do you think?
Kalogeropoulos: It was interesting. I wouldn’t have thought the factory fires would have been so big in there, but it’s interesting. Also the bottleneck aspect of this whole thing, because like you said, sometimes we could get the container ships to the port on time.
But then, if you don’t have the truckers to haul it, or if you don’t have the equipment to unload it, it doesn’t really matter. It’s interesting what they call it a supply chain for a reason and we see how [laughs] one of those links can really mess things up.