The outbreak of the COVID-19 pandemic in 2020 changed various aspects of human activity in profound and pervasive ways. The most publicized news at the time concerned government lockdowns, job losses, and spiking infection rates. Two years later, the world is slowly starting to recover from the direct effects of COVID-19. More than half of the global population is vaccinated, schools are resuming traditional face-to-face classes, and it is now no longer obligatory to wear masks in public spaces (Ritchie et al.). However, one institution continues to suffer from the delayed effects of the pandemic: the global supply chain. The overall effect of the pandemic on the supply chain mechanisms and ensuing inflation has been deemed “unprecedented” by expert economists (Labelle & Santacreu 4). Ninety-four percent of Fortune 1000 companies have experienced disruptions because of the pandemic (Labelle & Santacreu 6). Halted production during lockdowns created global supply chain disruptions that are still being felt despite the world slowly starting to recover from COVID-19.
Underlying Causes of Disruptions
Firstly, the onset of COVID-19 caused a massive change in consumer behavior and consumption patterns. Due to job losses and the economic recession, consumers were more likely to spend their money on basic rather than discretionary goods such as clothing and cars (Notteboom, Pallis, & Rodrigue 182). There was immediate increased demand for cleaning products, disinfectants, vitamins, and health supplements (Panwar, Pinkse, and De Marchi 7). Consumers began panic-buying and hoarding essential products, resulting in temporary shortages of items such as toilet paper, bread, and water (Sheth 281). Demand for dumbbells for home gyms, at-home caffeine products, and home-office equipment eventually increased as working from home became normalized. Since social outings and travel were prohibited, the travel, tourism, and entertainment industry collapsed and stopped ordering supplies. However, people began experimenting with new hobbies, and demand for home baking products and musical instruments increased. While it is expected that most consumer behavior patterns will return to normal, it is predicted that more convenient and affordable alternatives will become core habits (Sheth 282). These shifts in consumer demands caused significant disruptions in entrenched supply chains.
Growth of E-Commerce
Secondly, the pandemic accelerated the growth of the e-commerce industry since brick-and-mortar shops were closed during lockdowns. Instead of companies delivering goods from factories to warehouses that supply retail outlets, they must deliver individual orders to homes and businesses (Goodman). However, no adequate measures have been taken to accommodate this shift in logistics (Xiao et al.). Warehouses near the largest metropolitan areas are crammed with goods, and there is simply no more available land to build new ones (Goodman). As a result, containers are forced to float offshore for days or weeks because there are no storage facilities to store their goods. The rise of e-commerce during the pandemic has contributed to supply chain disruptions because it does not match the traditional logistics facility market.
Production Backlogs
Thirdly, the nationwide COVID-19 lockdowns caused a halt in production. Initially, the global hotspots of industrial output, such as China, South Korea, and Taiwan, caused a supply shock by sharply decreasing production when the virus was discovered (Notteboom et al. 185). Then, many factories were shut down or forced to reduce production globally due to government lockdown measures or ill employees. Since corporations expected a strong downturn in trade, they reduced their inventory levels and spending on supplies and equipment. Backlogs were thus created at production sites since they had no raw materials or workers (Panwar et al. 8). However, demand for manufactured goods actually rose during the pandemic, and the economic recovery in 2021 was unexpectedly quick and widened the gap between consumer demand and companies’ ability to supply. The backlogs created during lockdowns are causing a delayed supply shortage post-pandemic.
Shipping Container Congestion
Fourthly, these issues were exacerbated when shipping companies reduced the number of vessels at sea to keep logistics costs from rising. Although shipping containers are heading out on their routes, they are not being exported back due to inadequate planning, port labor shortages, port congestion, and inland transport systems’ capacity constraints (Panwar et al. 8). Ports in North America and Europe were overwhelmed by the heavy influx of ships, and most port workers and truck drivers were either ill or in quarantine. In general, the container shipping market is uncertain and volatile, and it is difficult to fix its structural issues quickly due to the “inflexible nature of vessel capacity…[and] fixed timetables” (Notteboom et al. 187). In December 2021, nearly 100 ships were piled up in Southern California alone, and freight rates quadrupled (Panwar et al. 8). Supply shortages began occurring because corporations predicted a downturn in trade and reduced their fleet capacity, causing delays and congestion throughout the supply chain that will take years to fix.
Impact of the Disruptions
One of the most significant impacts of the global supply chain disruptions is inflation. Industries that rely on outsourced manufacturing are most affected by disruptions and experience price increases due to higher freight rates and the inability to keep up with demand (LaBelle and Santacreu 12). The rising prices are more prominent in the producer price index compared to the consumer price index (Attinasi et al.). This inflation will eventually be passed on to consumers after a certain lag, meaning the full effects of the supply disruptions have yet to be felt. Furthermore, inflation is unlikely to disappear due to the unequal distribution of vaccines and the rise of new COVID-19 variants. The supply chain disruptions induced by the pandemic are causing inflation which is likely to continue increasing.
Conclusion
In conclusion, the global supply chain disruptions have persisted even after the pandemic due to changes in consumer behavior, growth of e-commerce, production backlogs, and shipping container congestion. The onset of the pandemic caused an increased demand for household cleaning products and at-home entertainment, while the travel and tourism industry completely collapsed. Since traditional brick-and-mortar shops were closed, consumers began utilizing e-commerce sites, which presented a logistics challenge to supply management because companies had to deliver to individual homes rather than warehouses. The increased demand for manufactured goods and the quick economic recovery in 2021 were unanticipated. Due to lockdowns and a predicted downturn in trade, businesses curtailed production and could not sustain their normal production levels or meet new consumer demands. Further cost-cutting measures included fleet reduction, which created a shortage of shipping containers, port congestion, and increased freight prices that will take years to fix. The most significant impact of the aforementioned trends is inflation, which is likely to persist and even increase due to the delayed effects of post-pandemic supply chain disruptions.
Works Cited
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