U.S. Supply Chains: No relief until 2022 – or laterDec 09, 2021 04:32PM ● By David Dykes
By L. C. Leach III
This might be the year to consider shopping early for Christmas gifts – that is, for Christmas 2022.
Whether it’s automobiles, clothing, smart phones, computers and other digital electronic devices, or maybe just a favorite kind of food or toy, product distributors across the U.S. are finding it tough to stock many items due to snagging supply chains at many U.S. ports.
Supply chains have slowed and been disrupted by many
factors, including labor shortages; packed warehouses that can’t receive any
more cargo; ships tied up in harbors waiting to deliver cargo to the packed warehouses;
and constraints on worldwide shipping in an effort to contain the spread of Covid-related
And analysts and experts are expecting these kinds of disruptions to the supply chains to continue for at least another year.
“I anticipate product shortages continuing through 2022,” said Brian Mangum, founder of BrightFlow Technologies, a services and security firm in Mint Hill, N.C. “It will take at least that long to build more factories in the supply chain, as the demand for goods continues to increase.”
One of the biggest product demands, and shortages, is computer chips – tiny modules that store memory or provide logic circuitry for microprocessors. The manufacturing process for these chips is typically greater than 26 weeks, exactly half a calendar year.
But Mangum added that because 75 percent of the world’s chips come from China, South Korea, and Taiwan, geopolitical tensions between these three countries and the U.S. “have only made the supply chain issue worse for American consumers.”
In March 2021, the chip shortage led to the temporary closing of the Volvo Cars plant in Ridgeland, S.C.
“The global car and electronics industries are impacted by the shortage of semiconductors and so are we,” said Volvo spokeswoman Stephanie Mangini.
Volvo has since resumed business with plans to expand operations.
But shortages have trickled down to many companies that supply the auto industry, such as The Reynolds Company, maker of adhesives and coatings, with operations in Greenville, S.C.
Jerry Broome, the company's vice president of operations and purchasing, said earlier this year the computer chip shortage affected Reynolds’ normal supply cycle operations because its orders for the kind of glue needed for automobiles had stalled.
Broome said a general shortage of raw materials and components across the board, not just for adhesives, affected a lot of industries.
Reynolds, for example, sells to the bedding industry. But when those companies can’t get mattress springs, it has a domino effect that reduces the number of orders to Reynolds, Broome says.
“It’s not just a glue thing,” he says. “A lot of things are in short supply.”
And in the automotive market, which is a large adhesive user, a computer chip shortage affected the vehicle supply, and thus Reynolds’ operations.
“It’s not that they can’t get our adhesives,” Broome says. “It’s because they can’t get the chips. They can’t get the chips so they can’t make automobiles. If they can’t make automobiles, they don’t need any glue.”
The Reynolds Company in Greenville was founded in 1978 by Hays Reynolds, Jr. He was a member of the Class of 1944 at Clemson College (now Clemson University).
After serving in the armed forces in Europe, Hays returned to South Carolina and began a career selling starch to textile mills throughout the southeast. It was in the early 1960s when he launched an adhesive manufacturing company called Tanco Adhesives.
With over 150 employees and sales throughout the United
States, Canada, Europe, and Asia, its customer base is comprised of Fortune 500
customers as well as smaller, more regional customers. The company produces hot
melt, water-based adhesives, and dry blend adhesives.
In a recent report, CBRE, global leader in commercial real estate services and investment, said:
- Disruptions to global supply chains have consumer goods and logistics companies scrambling to increase their inventories and expand their warehouse space, creating opportunities for industrial and logistics property owners and investors.
demand for industrial space is forecast for markets near large population concentrations,
as well as seaports, inland ports and major air hubs.
- Product sourcing will expand beyond long-dominant countries like mainland China, as distributors implement multi-location strategies to mitigate risk and increase inventories in the face of continued supply chain disruptions.
- Industrial demand will shift to different ports of entry as countries of origin change. In the U.S., shifts in product sourcing to South Asia and Europe will benefit East and Gulf Coast ports, especially Charleston, Savannah and Houston. In Europe, the Greek port of Piraeus and the Spanish ports of Algeciras, Barcelona and Valencia are expected to attract more container volume. Alternative port choices in Asia-Pacific include Xiamen, Qingdao, Nansha and Shekou in mainland China and Tanjung Pelepas in Malaysia.
- More nearshoring or reshoring of manufacturing, particularly to Northern Mexico, will help relieve supply disruptions affecting the U.S. market.
Dr. Joseph Von Nessen, research economist with the University of South Carolina’s Darla Moore School of Business in Columbia, emphasized that the long, continuing labor shortage across both South Carolina and the U.S. also has been a chief contributor to both a lower supply of goods, and accompanying inflation for many products, such as automobiles.
“The price of used cars, for instance, rose by 42 percent between July 2020 and July 2021,” Von Nessen said. “To put this into perspective, if the price of used cars had remained unchanged over the past year, the current inflation rate of 5.4 percent would instead be just 3.5 percent. So this increase in price has been a direct result of the shortage of new cars that emerged due to the shortage of semiconductors, further due to a shortage of workers to make enough of them to meet consumer demand.”
An August 2021 Gallup poll reported that for the months of June and July, 71 percent of Americans had either been unable get a product they wanted because of shortages, or experienced significant delays in receiving a product they ordered.
Myrtle Beach Hyundai is one business that attempted to get ahead of this shortage by getting more cars.
But general manager Robert Wingate said that this action actually hurt the dealership for future allocation because “we had so many cars on the ground.”
“We usually sell about 135 vehicles a month – but that’s been down 10 or 15 percent a month since the supply chains issue,” Wingate said. “And at this point, it’s a mystery as to how we’re going to meet demand.”
Beyond automotive, other U.S. industries are also feeling the supply crunch, including food suppliers, toy companies, and a wide range of manufacturers, such as S.C. Steel in Greenville, S.C.
“Inbound raw materials from one of the mills in Arkansas ran several weeks late in Q1 and Q2 of 2021, resulting in our having to shorten production hours in our facility,” said Charles Wall, president S.C. Steel. “We have also experienced paint shortages from a major paint brand. They tell us that resin is in short supply.”
Regular grocery items are bare on many shelves.
For example, if you are a regular shopper with local food retailers, you might see odd shelf offerings such as: cake icing but no cake mix; brewing coffee but no instant coffee; canned soup but no soup crackers; and the suspension, reinstatement, and then re-suspension of its bulk almonds.
Even international businesses with their own production facilities aren’t immune.
Plus-Plus USA, for instance, is a Denmark-based company which manufactures toys in its own factory for shipping to North America. Its U.S. office is in Greenville, S.C.
The company said it has been forced to raise toy prices because of the increase in cost for materials.
“Our raw material prices have almost doubled since last year,” said Ryan Hamilton, head of operations for the company’s Greenville, S.C., office. “Our cost of shipping from Europe to the U.S. has almost doubled as well, and changes almost weekly.”
And FedEx, a transportation company best known for its overnight delivery service, recently announced that effective Nov. 1, 2021, a fuel surcharge increase would be applied to FedEx Express (domestic package and freight services), FedEx Ground, and FedEx Freight shipments.
The company also announced that effective Jan. 3, 2022, FedEx Express, FedEx Ground, FedEx Ground Economy, and FedEx Freight rates will increase.
Reasons include a tight labor market and ongoing shifts in volume, which the company said, have “increased our total fuel consumption, and the corresponding increase in the fuel surcharge will allow FedEx to provide customers with the best service possible as we adjust to rising fuel costs and spikes in demand."
But while costs for fuel, shipping, and materials can be adjusted as necessary by business and industry, the lack of workers remains one of the biggest wild cards for trying to predict when the supply chains might recover.
This past summer, the Federal Reserve Bank of Richmond reported that while the manufacturing wage index “hit a record high,” in August, firms are struggling to find workers with the necessary skills, and expect this trend to continue in the coming months.
“The unprecedented import surge, fueled by American consumer spending since last summer, has put a strain on all aspects of the supply chain,” said Phillip Sanfield, director of media relations with the Port of Los Angeles, Calif. “We handle more than 10 million TEUs (twenty foot equivalent units) per year, and ship to all parts of the U.S. But we expect the U.S. supply chain issues to last through 2022.”
The Port of Charleston, S.C., is trying to address the supply chain problem for the east coast through investments in port infrastructure to increase storage capacity.
Those investments include:
• The Charleston Harbor Deepening Project, which is on track to achieve a 52-foot depth in 2022. This would make Charleston Harbor the deepest on the East Coast, and capable of handling mega container ships at any time of year during any tide.
• A three-phase buildout of the Leatherman Terminal, which will allow for the handling of 2.4 million TEUs of cargo, nearly 3.5 times its current capacity.
• A $28 million expansion to Inland Port Greer, S.C., a terminal which extends the Port of Charleston's reach 212 miles inland.
Terminal manager Will Angelich said this expansion will help ease supply chain issues by allowing IPG to “efficiently handle more imports and exports for customers moving goods through the Port of Charleston.”
But even with increased cargo capacity at ports and terminals, Professor Von Nessen said the extra storage space is only going to be as useful as the presence, or absence, of enough workers to ship all the cargo and products that people are wanting.
"Going forward, as we head further into the 2021 holiday season and the new year, the emergence of the (Coronavirus) Delta variant makes the possibility of additional, significant labor force growth for the next several months, or longer, more uncertain."
To make the holiday shopping season as smooth and stress-free as possible for its large amount of customers, WalMart Inc. executive Joe Metzger recently announced that the super-retailer plans to hire 20,000 permanent supply chain positions and more truck drivers to “help move products through our facilities as quickly as possible.”
“We have hired more than 3,000 drivers this year, with more in the pipeline,” said Metzger, executive vice president for WalMart’s supply chain operations. “We’ve added storage capacity in our fulfillment and distribution network through new facilities, and we’re working aggressively to ensure we have associates available to help customers and fill online orders by hiring 150,000 associates across the country. So we’re prepared to serve customers whether they choose to shop in-store or online.”
To meet his own client demand in the short-term future, Brian Mangum said BrightFlow began doubling orders of new computers back in the spring, and are currently “holding the most inventory in the history of our business in order to plan for a shortfall.”
“We communicated with our clients this past spring to buy early for the desktops, monitors, servers, and laptops that they would need for the rest of 2021," he said. “And as I have not yet seen any indication for a return to normalcy in the supply chains, business owners and managers need to plan now for what new devices they will need for next year.”