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How Supply Chains Have Been Affected by COVID-19

Posted October 06, 2020 by Bill Walker

In addition to millions of people becoming ill, the COVID-19 pandemic has had far-reaching consequences for our economy. We’ve seen millions of job losses. Businesses have watched their profits plummet, leading some to close permanently. The stock market has experienced dizzying volatility. A key contributor to the economic impacts has been disruption in the supply chain, especially for goods and components coming from China. 

China was of course the original epicenter of the COVID-19 outbreak, and their citizens and businesses paid a heavy toll early on. In recent months, manufacturers in that country have slowly begun to reopen but at a reduced capacity so that workers can socially distance, leading to marked declines in production rates. 

So, while China has largely contained the spread of the disease, the ripple effect of the virus on their production and exports has been far-reaching, and many aspects of the supply chain have not yet fully recovered. 

The causes of supply chain disruptions

If you’ve seen empty shelves at stores in recent months, you’re not alone. Many high-demand items have been in short supply, while prices on other goods have increased. All of this is interrelated to the supply chain issues we are seeing around the globe. There are a number of issues, both in the U.S. and abroad, that are creating these kinks in the supply chain and manufacturing holdups.

Extended lead times

China accounts for a whopping 60 percent of global consumer goods exports and 41 percent of technology, media, and telecom exports. But as the virus swept through that nation, China’s production dropped substantially. 

Here in the U.S., imports from China are down 15.7 percent year-to-date through July. With the exception of textiles (up nearly 100 percent) and food products (up around 5 percent), all categories of Chinese imports suffered losses during this time period.

In the March Institute of Supply Management (ISM) survey, manufacturers reported lead times for Chinese goods had doubled. Relatedly, 68 percent of respondents to the March ISM survey reported lead times from European suppliers also had gotten longer, due in part to those countries’ dependence on Chinese components.

Transportation bottlenecks

Prior to the COVID-19 pandemic, around half of all global air cargo traveled on passenger planes. With the number of flights cancelled around the globe, bottlenecks in transporting goods have arisen, particularly from China and the rest of Asia.

In addition, many cargo ships have been idled in Asia due to lack of cargo for return trips. They have been unable to fully reload to make the trans-Pacific trip cost-effective. This means many goods are getting stuck at Chinese ports waiting for a full load in order to depart, causing delays to finished goods as well as components that impact production further down the supply chain.

Domestic manufacturing production cutbacks

Here in the U.S., we’ve seen numerous plant shutdowns due to virus outbreaks. The meat-packing industry has been especially hard-hit. Other manufacturers also have been operating at a reduced capacity due to social distancing and other safety-related operational changes, leading to flagging production. 

Production of domestic goods also has been impacted by supply chains issues. With components coming either directly from China or coming from China by way of European manufacturers, which have also had shutdowns and decreased production, U.S. manufacturers are feeling the brunt of supply chain challenges.  

As a result of these factors, shipments of U.S. goods are down 8.3 percent year-to-date through July.

Examples of supply chain impacts

All of these factors have contributed to the supply chain issues impacting manufacturers around the world. And they are having real-world consequences. A few examples of industries that have been impacted by supply chain challenges:

  • Laptop shortages are increasing as rising demand driven by back-to-school purchasing and pandemic-related increases in telecommuting collide with inadequate supply caused by pandemic-related factory closures earlier in the year. The top three computer manufacturers, Lenovo, HP, and Dell, told school districts that they have a shortage of nearly 5 million laptops, according to The Associated Press. 
  • "Aluminum cans are in very tight supply with so many people buying more multi-pack products to consume at home," Coca-Cola spokesperson Ann Moore said. Can manufacturers have announced plans to build at least three new factories within the next 18 months. Can maker Ball Corp. will open two new U.S. plants and is adding two new production lines to existing U.S. facilities.
  • Shortages of pressure-treated lumber are being reported across the country. Industry experts cite pandemic-related sawmill and wood treatment facility shutdowns earlier in the year that reduced supply combined with shelter-at-home orders and stimulus payments that increased the number of home improvement projects as the key causes of the pressure-treated lumber shortage. Lumber prices have risen 50 percent since April 17 and have passed the $500 per 1,000 board feet level for the first time since July 2018. 
  • Sugar-free soft drinks are in short supply because of the coronavirus pandemic. Coca-Cola, the world’s largest soft drink company, said that the pandemic has disrupted its supply chain for artificial sweetener and “certain other ingredients” that are shipped from China. 
  • Supply chain problems that stem from COVID-related shutdowns left major boat builders unable to finish production. According to the New York Times, Yamaha reopened its two U.S. factories on May 4, and is technically operating at 100 percent, but cannot finish some boats because of missing seat cushions, wiring, or windshields. 

Cause for optimism?

These supply chain issues are certainly concerning, but there is some hope on the horizon. While Chinese imports are down 15 percent year-to-date, looking at June 2020 versus June 2019, imports were only down 1.9 percent; July versus year-ago, they were only down 2.6 percent. So, perhaps we are reaching the end of the tunnel when it comes to some of our supply chain challenges, and fully stocked store shelves will soon return.

>> You can learn more about how COVID-19 is impacting specific industries by visiting our free COVID-19 webpage.

 

Tags: economy, COVID-19, retail, supply, jobs

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