Opinion: What's causing holiday supply chain issues? Blame markets, COVID-19 and Uncle Sam
This holiday season, some stores may have a hard time keeping their shelves stocked in the ways American consumers have grown accustomed to. But don’t blame the other customers or the stock clerks — blame supply and demand. Blame COVID. Blame the generous checks we all got from Uncle Sam this past year. Just do us all a favor and don’t ask Washington for any more help.
The stress in the supply chain is a result of demand exceeding supply. Consumers have shifted their buying habits a bit — moving away from services and toward goods — and supply is having a hard time keeping up.
When COVID-19 hit in early 2020, many workers and consumers stayed home. Factories, production lines, packaging plants and shipping routes — everything that it takes to make your favorite products and get them to you — either got shut down or scaled back.
After that, demand picked back up pretty quickly. Americans got their stimulus checks. Some workers stayed home while others were able to work remotely. Either way, it did not take long for us to figure out how to shop, dine and entertain ourselves all from home. The bounce-back in demand has been more in physical goods than in services. For instance, people didn’t renew their gym memberships and instead bought — or tried to buy — home exercise equipment, if they could find what they wanted.
One family I know outside Washington, D.C., saw their old electric stove die in January. Flush with disposable income unspent during the pandemic, they splurged on the induction range of their dreams, only to spend six months eating microwave dinners and takeout before the new appliance was finally delivered.
The appliance store blamed the “chip shortage,” similar to the one you may have heard about with automobiles. It turns out that semiconductors are used to precisely control the oven temperature. Manufacturers have been scrambling for essential components while homebound consumers seek to upgrade.
Lockdowns across southeast Asia mean factories there have been shut down, cutting a supply swath through a diverse set of industries relied upon here in America. Recent production disruptions in Vietnam, Malaysia and Thailand have taken a bite out of Apple stores in the United States, as well as retailers of apparel, footwear and furniture.
The car industry relies on Malaysia for semiconductors and Vietnam for auto parts. When those countries went into lockdown, it had big ripple effects. Citing a shortage in critical components, General Motors announced it was cutting production at eight of its plants in North America in September. Toyota announced a 40% reduction for that same month.
The labor shortage is further frustrating supply. Workers have not returned in full force. About 5 million fewer people are employed in the United States than before pandemic began. Some analysts think it has to do with decisions to drop out of the workforce after the upheaval of the last few years.
Your Thanksgiving dinner provides one example. United States Department of Agriculture data show that the price of a whole turkey has been going up for a while. That increase is even higher this year. An 8- to 16-pound turkey was $1.36 per pound leading into this year’s holiday, compared to $1.13 this time last year. That’s an increase of 20.2% since last year. But in this case, it’s not really a shortage of turkeys. Farms have plenty of birds.
Rather, the problem is a shortage of laborers to do the processing that it takes to get those turkeys ready to be packaged, and tight conditions in the trucking industry to get packaged turkeys shipped to stores. Most people can find a turkey if they want one, but maybe not the ideal size for their table at the price they’re used to paying.
Butterball said that the shortage of workers has meant their turkeys have stayed at the farms longer than usual (so they grew larger). So, it might be harder to find smaller turkeys this year.
What does this all mean as we finish the pumpkin pie and start holiday shopping on the laptop or at the mall? A price Grinch awaits.
Even Christmas trees are in short supply. Cut trees are scarce in some regions due to drought, pests and possibly trucking woes, and there are reports of a very real shortage of fake trees. The same bottlenecks for shipping capacity, port operations and domestic freight plaguing other imports have caused a spike in costs and left a hole in inventories for seasonal goods.
One thing there is no shortage of are bad policies worsening supply problems. Just fixing these could help a lot. Our many tariffs, an especially big issue in the past few years, are a tax on the imported intermediate goods that so many small, medium and large companies rely on. (Scaling tariffs back would also help ease rising inflation somewhat.) Restrictive regulations on U.S. ports and the trucking and warehousing industries are also making things worse.
Moreover, there’s no reason to think that Washington is good at managing complex supply chains, which requires detailed, company-by-company logistical and confidential business information. Private enterprises exist to sort that out, and they have every motivation to do so. They already are.
Some have built up dual streams to up supplies, and others have developed more inventory, longer lead times and a huge database to keep detailed tabs on critical parts so they have an early warning signal on supply chain problems. The adjustments take time.
So while President Joe Biden doesn’t have a magic supply wand, with a stroke of his pen he could cut tariffs and direct his White House to confront costly regulations. That would be something an economist would be thankful for this holiday.
Christine McDaniel is a senior research fellow with the Mercatus Center at George Mason University. She’s held a number of positions relating to trade policy with the Treasury Department, White House Council of Economic Advisers, Department of Commerce, U.S. Trade Representative and U.S. International Trade Commission.