The Biggest Issue for Businesses Right Now: The Supply Chain Crisis

 The Biggest Issue for Businesses Right Now: The Supply Chain Crisis

Written by: Johnny Maasch 

Lately, we have been going to stores or gas stations sighing at the unbelievably high prices. We are paying so much more now compared to a year ago. And quite possibly, we could be paying even more another year from now. This is a big issue for us, but for businesses, an even bigger issue. Some may believe that higher prices should not be worse for businesses because they will make more money, right? Wrong! The prices are rising because there is a supply chain crisis, meaning that the steps it takes to obtain and sell a product are much more expensive. This leads to consumers being less willing to consume those products, hurting businesses. The supply chain crisis is the biggest issue for businesses right now because the pandemic led to slower transportation of goods, transportation has increased in price, and shipping containers are becoming extremely expensive.

Before diving into the reasons why the supply chain crisis is the biggest issue for businesses right now, it is important to provide context on what the supply chain is and how this crisis began. The biggest factor that began supply chain issues was the pandemic. The pandemic proceeded to cause layoffs, a decrease in productivity, and reduction in shipping. At the same time, China was sending shipping containers to any country, even if they did little trade with them, such as countries in West Africa. This led to empty shipping containers to pile up all around the world, resulting in a shortage.  Because there are now less workers and fewer containers to ship with, a supply chain crisis began.

First, multiple national lockdowns slowed down the transportation of raw materials and finished products. Because of this, the manufacturing process was largely disturbed. In addition, workers were getting quarantined left and right and some governments were closing factories, causing the number of producers to dramatically decrease. Recently, Shanghai has been in a total lockdown where “25 million people have been ordered to stay home.” (Brant). Many suppliers in Shanghai are being shut down because of this, meaning that many products are laying in factories instead of being distributed. All of this leads to a lack of workers, supplies for businesses, and sales. Many companies were not prepared for these tremendous effects. 

In fact, Ernst & Young LLP (company known for business consulting) conducted a survey on 200 senior supply chain executives in 2020. The survey looks at the pandemic’s impact on those companies. As shown in the picture below, most of the responders claimed that this had negative effects on their company. 

https://www.ey.com/en_us/supply-chain/how-covid-19-impacted-supply-chains-and-what-comes-next 

Second, transportation costs are insanely high, leading to the cost of products to increase. And if the cost of products is higher, less people will purchase them, and businesses will make less equity. From April of 2020 to April of 2022, a gallon of gasoline in the Chicago area has increased by about 42.5%. These costs have been increasing in the United States for several reasons, one being that we have discontinued the domestic production of oil. To add, a more recent reason would be since we have discontinued our imports of oil from Russia due to Russia’s actions against Ukraine.

https://fred.stlouisfed.org/series/APUS23A7471A 

Lastly, shipping containers are getting incredibly expensive while being in the wrong places. To dive deeper than explained before, in early 2020, China started to create half of the protective masks. Because there was such a high demand for masks during this time, China needed to meet that new sense of demand by sending more shipping containers to deliver these masks everywhere. Because some of these places were not too involved with China in trade, these shipping containers got stuck in the places they were sent. This ultimately led to a shortage of shipping containers for China, which is not great news because China needs shipping containers more than any other country. This hurts businesses because many countries get raw materials from China, and if there are no raw materials, there are no products to sell. And with shipping becoming more expensive and slow, companies will have to spend more, wait longer to receive products, increase prices, and less consumers will purchase.

Overall, there are many reasons why the supply chain crisis came to be. And, this is also the biggest problem for businesses because they need to wait longer, spend more, and increase prices while consumers will not consume as much. This will likely continue to be an ongoing issue for quite a long time, and some businesses may ultimately shut the doors if it gets too severe. So, do you believe the supply chain crisis is the largest problem for businesses right now?

Works Cited

“Average Price: Gasoline, All Types (Cost per Gallon/3.785 Liters) in Chicago-Naperville-Elgin, IL-in-Wi (CBSA).” FRED, 11 May 2022, https://fred.stlouisfed.org/series/APUS23A7471A. 

Gamio, Lazaro, and Peter S. Goodman. “How the Supply Chain Crisis Unfolded.” The New York Times, The New York Times, 6 Dec. 2021, https://www.nytimes.com/interactive/2021/12/05/business/economy/supply-chain.html?action=click&pgtype=Article&state=default&module=styln-supply-chain&variant=show®ion=MAIN_CONTENT_1&block=storyline_top_links_recirc. 

Harapko, Sean. “How Covid-19 Impacted Supply Chains and What Comes Next.” EY, EY, 18 Feb. 2021, https://www.ey.com/en_us/supply-chain/how-covid-19-impacted-supply-chains-and-what-comes-next.