Date: Wednesday, February 3, 2021
Source: USA Today
Big Hammer Wines has about 20% less inventory than normal these days, forcing the restaurants, retailers and online customers who normally patronize the wine seller to choose alternative brands or find another supplier.
When frustrated restaurants complain, “I keep saying, ‘We don’t have the product, we don’t have the product, we don’t have the product,” says Greg Martelloto, president of the San Diego-based company.
Some of Big Hammer's customers pick a different brand of wine, but others bolt. “If you don’t have what they’re looking for," Martelloto says, "they go elsewhere.”
Meanwhile, buyers hunting for a Ford Bronco, Lincoln Corsair or Jeep Compass, among many other vehicles, might need to forgo their preferred color or options package, unless they can tolerate a monthslong wait.
And popular electronics, such as smart speakers, may be delivered to shoppers’ doorsteps more slowly than usual, taking up to a week or more, up from a typical day or so.
COVID-19-related snags have delayed shipments of products and raw materials across the economy the past couple of months, pushing up wholesale costs and raising the likelihood of higher retail prices by midyear.
Behind the snarls: Some factories in the U.S. and abroad are shuttered while many others are running at partial capacity because of employee COVID-19 cases or social distancing requirements. Ports, warehouses and trucking companies are similarly grappling with worker absences. And containers for overseas shipments are in short supply. Even the rollout of COVID-19 vaccines is playing a role, taking up shipping capacity and slowing other deliveries.
Such bottlenecks were prevalent when the pandemic began in early spring as factories shut down across the globe. Since then, the crunch had gradually eased. But recent COVID-19 spikes, combined with a resurgence in customer demand, have sparked the direst shortages and delays yet.
“Not only have the last two months seen supply shortages develop at a pace not previously seen... but prices have also risen due to the imbalance of supply and demand,” says Chris Williamson, chief business economist at IHS Markit, a data provider.
To be sure, demand for services has dropped as spikes in coronavirus cases led many states to reinstate curbs on restaurants and other businesses. In December, retail sales fell for the third straight month and restaurants shed nearly 500,000 jobs. But Americans continue to snap up electronics and other home-based goods and their employers are still buying equipment to bolster their remote work setups, Williamson says. Companies, meanwhile, are replenishing their inventories after drawing them down substantially in the early days of the pandemic.
“Demand has returned much faster than supply,” Williamson says. IHS’s index of manufacturing activity in December hit its highest level on records dating to 2007.
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Americans are also buying items such as apparel again, though they’ve shifted to the casual and athletic wear more suitable to working or lounging at home, says Sue Welch, CEO of Bamboo Rose, a provider of supply chain software.
“People are bored with everything” in their wardrobes, Welch says.
The sales rebound has made the crunch more severe than in March and April, analysts say, when demand largely evaporated along with supply.
Higher prices on the way
The supply network, meanwhile, is clogged. Last spring, shipments from China dwindled to a dribble. They’re snapping back after that country was among the first to recover from the health crisis. In August and September, imports from Asia to the ports of Los Angeles and Long Beach, California, increased 22% from a year earlier, according to Supply Chain Management Review. But containers are piling up at the ports, which don’t have the workers to store and move them, the trade publication says. The congested ports have increased the time it takes truckers to drop off or pick up containers.
“They’re sitting in the wrong place,” Williamson says, adding he expects the gridlock to persist about three to six months. “Things are coming in fits and bursts.”
Orders that typically take days or weeks to fulfill are dragging out for months. Retailers have fewer items, in fewer styles and colors, Welch says. Manufacturers, in turn, have raised prices to retailers by 10% or more, she says, though most retailers haven’t yet passed the increases to consumers.
That’s coming, though, economists say. The consumer price index, which rose a modest 1.4% annually in December, will likely be up 2.7% to 3% – above the Fed’s rough 2% target – by midyear, says Joe Brusuelas, chief economist for consulting firm RSM. Yet he expects the increase to last just several months until manufacturers ramp up production capacity.
Many large retailers such as Walmart are paying premiums for manufacturers to speed deliveries by trucking products directly to stores rather than distribution centers, Welch says. The stores can also fulfill local e-commerce orders more rapidly. The setups could herald a new delivery model that extends beyond the pandemic, Welch says. Smaller retailers that didn’t pay manufacturers when their shipments were delayed could struggle to obtain products, she says.
Martelloto, the president of Big Hammer Wines, says deliveries from wineries in Bordeaux, France, and other overseas locations have extended from an average of four to six weeks to 10 to 20 weeks. His 20% drop in inventory is roughly translating into a similar-sized sales decline. To minimize future disruptions, Martelloto says he’s ordering a 60-to-180-day supply of wine instead of his usual 30-to-90-day allotment, but he likely won’t receive it for a few months.
No chips, no cars
Automakers are contending with another kind of supply chain tie-up. As in other industries, many parts are arriving late at U.S. and overseas assembly plants because of COVID-19-related worker absences and a congested shipping system.
But the bigger problem is that while auto plants were shut down in March and April due to COVID-19, makers of chips – used throughout vehicles but especially in hybrid and electric models for safety, navigation and entertainment – diverted their auto-related production to consumer electronics, whose sales were surging. Chips were also channeled to medical devices, such as ventilators, and the data centers and cloud services that support teleworking, Fitch Solutions says in a research note.
Switching back that capacity to autos takes up to six months, says Kristin Dziczek, vice president of research at the Center for Automotive Research. The holiday shopping season only intensified demand for iPhones, tablets and other gadgets.
Without the chips, automakers can’t churn out vehicles. In January, Ford idled its Louisville, Kentucky, plant that makes the Ford Escape and Lincoln Corsair SUVs, according to research firm Cox Automotive. Fiat Chrysler shut down its Canadian factory that builds the Chrysler 300, Dodge Charger and Dodge Challenger.
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Other automakers have simply cut back, with Toyota trimming production of its hot-selling Tundra pickup at its plant in San Antonio, Texas. About 2.8 million new vehicles sat at U.S. dealerships in early January, down from about 3.6 million in March, according to Cox.
“It’s very widespread,” Dziczek says of the production cuts.
As a result, car buyers may not be able to get the color or options package they want, says Cox spokesman Mark Schirmer. Dziczek expects the shortages to last at least through the first half of the year.
Less clothing, more face masks
Clothing sellers are also dealing with the fallout from pandemic-related reshuffling. Tom Rauen, CEO of Dubuque, Iowa-based Envision Tees, which makes printed T-shirts for businesses, says many of his manufacturers in Haiti, Guatemala and Nicaragua shut down early in the pandemic, then started churning out face masks to meet high demand. Crewneck and hooded sweatshirts are out of stock or in limited supply in popular colors, and there are few safety green and safety orange shirts in many styles and sizes, he says.
Like Martelloto, Rauen is coping by ordering more inventory, a strategy that, in aggregate, is boosting the economy during a rough period but could intensify the shortages.
Many manufacturers have been hit with higher raw material costs. Nufabrx, based in Conover, North Carolina, makes clothing laced with medicine that’s delivered through the skin, as well as moisturized face masks and other medical products. Besides delivery delays and product shortages, the company’s costs for yarn and other materials have jumped 25%, says CEO Jordan Schindler. He says he hasn’t passed the costs to consumers.
“It didn’t feel right,” he says.
Other entrepreneurs can't seem to catch a break. Andrea Herrera’s Chicago-based catering business was decimated by the pandemic, with sales falling 90%. She quickly started a new company called Boxperience that sells handmade crates packed with wine, food and monogrammed gifts for businesses to give to clients or prospects. She was selling about 200 gift boxes a month – at an average price of $200 each – until November, when she began receiving crates from her Idaho manufacturer in a week or two instead of the usual couple of days, jeopardizing shipments to customers for the holidays, Herrera says.
UPS and FedEx were swamped with vaccine deliveries, she says.
Herrera scrambled to find a local supplier to provide the boxes quickly but her costs soared and she barely made a profit. And because of the shipping snarls, she had to cancel plans for a Valentine’s Day box.
“It’s frustrating,” she says of her pandemic-related troubles. “It feels like no matter where you turn, you hit a dead end.”