The global supply chain is only as strong as its weakest link. Due to the COVID-19 pandemic, the supply chain has grown many new weak links, culminating in shortages and increased prices. 

What’s Happening 

Hitendra Chaturvedi, a business professor at Arizona State University and a global supply chain expert, explained that there are many factors leading to what soon may become a global economic crisis. 

Chaturvedi explained that COVID-19 caused countries to open and close their ports at different times. Due to this, even if a country was able to export goods, the intended country may not be able to receive them.

“So you have empty containers, as a matter of fact, some estimates for 70% of all the containers on the Trans Pacific were sitting empty in our ports because we have literally come under lockdown,” Chaturvedi said. 

Compounding this issue was an unforeseen increase in demand as the pandemic improved in spring and summer of 2021.

“Imagine a python trying to swallow a pig,” Chaturvedi said, explaining that the pig is consumer’s large demand. 

Meanwhile, labor shortages were crippling not only small businesses, but also the port system. While the efficiency of the port system decreased by about 20%, incoming products increased by about 30%. Instead of a three-day turnaround to unload a cargo ship carrying 20,000 containers, Chaturvedi said it’s taking port workers seven. 

Once those containers are unloaded, trucker and rail worker shortages mean that it’s even harder and slower to get those imported items to warehouses. Then, warehouse worker shortages compound the difficulty to get items out to sellers. 

Small businesses nationwide are facing increased labor cuts that are difficult to face. This cost is passed on to consumers through “shrinkflation,” which occurs when the size of an item is reduced, but not the price. Another factor is through direct price increases—Chaturvedi said that most consumers have seen their grocery bills increase by 35-40%. 

“So we are not a third-world country,” Chaturvedi said. “Many of the people said they felt like it.” 

Small Businesses

The supply chain problems will be of particular harm to small businesses, which employ nearly half of all Americans. About 200,000 small businesses have closed since the start of the pandemic. This number is likely to increase, according to Chaturvedi. 

One issue small businesses face is increased labor costs, which many can’t afford. They also face a disadvantage when ordering products internationally. 

“A Costco or Walmart can charge for their own ships to bring their products into the U.S., a small business guy cannot,” Chaturvedi said. “And assuming there is limited supply or manufacture in Asia, who do you think that they will favor first? A large guy who has a big order, or the small guy who has a small order?” 

Additionally, small businesses can’t maintain a large inventory due to limited cash flow, which can usually help mitigate the issue for larger companies. 

“The small businesses are getting hammered from all sides,” said Chaturvedi. “They are getting a very, very raw deal.” 

Holiday Shopping

The holidays are going to cause an increased demand and stress on the supply chain. Harking back to his python example, Chaturvedi says that holiday demand will turn that pig into an elephant. 

“Things are going to become worse before they get better and with supplies constrained, prices are going through the roof,” Chaturvedi said.

Chaturvedi explained that part of the problem is that inventory to sales ratios are very low, as inventories are continually depleted. The inventory to sales ratio describes the relationship between the value of a seller’s inventory and their total sales.

As people go holiday shopping, sellers’ inventories will become more and more depleted. After the holidays, those sellers will order a large quantity of merchandise, which will again cause disruption in the supply chain. 

With all of the supply chain issues, Chaturvedi warned consumers not to wait too long to buy Christmas presents.

“If you’re going out and buying your gifts now you’re already too late,” Chaturvedi said. 

Gas Prices

Gas prices are currently at a seven-year high, with the average gas price being about $1 per gallon higher than it was this time last year. 

David Dismukes, an energy studies professor at LSU, says that there are a variety of factors that play into that increase.

“The pandemic and the disruption is created and supply and demand have a lot to do with that,” Dismukes said. “That, coupled with the general uncertainty in the industry.” 

Dismukes said that consumers may see gas decrease after the holidays.

“Economic activity is going to start slowing down, and that will take pressure off of supplies,” Dismukes said. “OPEC [Organization of the Petroleum Exporting Countries] itself thinks that they may even be in a situation where they have more supply than demand by the end of the year around December or January time frame.” 

Hope for Improvement 

Chaturvedi said he does not expect to see improvement in the supply chain until late 2022 or early 2023.

 “If there is a new strain of Coronavirus that comes and we have not prepared, all bets are off,” Chaturvedi said.

In the meantime, consumers should get used to higher prices and adjust expectations appropriately. During this time, he suggested remembering that everyone–nationally and globally–is in this journey together. 

“With the holiday season coming up, I think we need to reignite that spirit,” Chaturvedi  said. “I need to help my neighbor, I need to help my local business weather the storm. If I need to buy gifts, I’m going to buy gifts locally, I will buy less. If there are many people who are going hungry, I want to feed them.”