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patience

Supply chains create leadership challenges

A supply chain crunch that many thought was temporary will last into 2022 and 2023. The Delta variant is impacting both production and distribution, posing more shocks to the world economy.

Eighteen months into this global pandemic, Covid continues to be disruptive.

Sick workers cannot offload ships. There is a shortage of labor to transport goods. Port congestion and delays are continuing. China temporarily closed part of the world’s third-busiest container port at Ningbo for two weeks after a single dockworker was found to have the delta variant.

Factors to understand:

1. Manufacturers are suffering from shortages of key production components.

2. Quarantining people who test positive is prevents factories from producing at capacity. To counter this, in Vietnam, (the world’s second-largest producer of footwear and clothing) the government has ordered manufacturers to allow workers to sleep in their factories to try to keep exports moving.
3. Costs of raw materials and energy costs are rising.

4. Shipping costs related to labor and energy and delays at ports are forcing bidding wars for manufacturers to get space on vessels, pushing freight rates to record high prices. For example, the cost of sending a container from Asia to Europe is about 10 times higher now, in August 2021, than it was in May 2020. (Source: Drewry World Container Index)

5. Exporters are raising prices or canceling shipments or both.

6. Higher freight rates will cause shipping costs to permanently rise.

7. Manufacturers can’t get enough of the components they need or the containers required to move their product due to supply chain congestion.

Many people don’t realize that supply chain issues affect them. Supply chain problems affect economic growth, jobs, and availability of goods and products close to home. Looking to get a new vehicle? It will cost more. Toyota is suspending output at 14 plants across Japan and slashing production by 40% due to supply disruptions including chip shortages.

Supply chain bottlenecks are going to continue. Consumers should expect to see rising prices, delays and shortages as the supply chains are struggling to deliver goods to markets.

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