Nikolaos Valantasis Kanellos, Author at The Fashion Law

1. The rising cost of living

Skyrocketing inflation has seen households hit hard by rising food costs. Expectations that consumers will have to severely cut back on expenditures this winter (from limiting discretionary purchases entirely to higher-income individuals trading down to more value-focused items) has caused demand for goods and services to plunge into uncertainty. This makes it difficult for supply chain planners to accurately estimate in advance the amounts and types of goods likely to be needed by consumers. The pandemic has already changed this picture considerably, but predicting demand has become even more difficult in 2022. Since stock for the Christmas shopping period, for example, is made and shipped months in advance, this current state of uncertainty is likely to feed into continued incorrect forecasts. This could lead to disappointments and/or shifts in consumers purchasing behavior this Christmas in the event that certain products are difficult to find or more expensive to buy as tighter supply pushes up prices.

2. Labor unrest

The rise in the cost of living has also seen workers demand wage increases to counteract the impact of inflation on their pay packets. Industrial action increases the pressure on supply chains. Striking truckers in South Korea, for instance, have already disrupted the supply chain for computers this summer; meanwhile, in the United Kingdom, railway strikes have affected deliveries of construction materials. Dock workers have been on strike in Germany and the United Kingdom, while freight hubs in Ireland are expected to clog up due to strikes at the Port of Liverpool across the Irish Sea. Some labor unions in the UK have floated the idea of coordinated strike action in coming months, which inevitably cause further disruption to supply chains.

In addition, truck driver shortages seen in 2021 have continued this year. In fact, labor shortages have spread to other sectors that support supply chains, including ports and warehouses. Coupled with increased e-commerce demand that sky-rocketed during the pandemic (and has since normalized to some extent), operations are becoming increasingly strained for many businesses.

3. Energy shortages

Inflation has not only been a problem for food prices, but it is readily impacting energy costs, as well. Rising gas prices and reduced supply from Russia are forcing European companies to look to alternative energy sources like coal, while research from Germany’s Chambers of Industry and Commerce shows that 16 percent of its companies expect to either scale back production or partially discontinue business operations. Germany is Europe’s largest economy, and it is heavily dependent on exports. If it is expecting a recession, the impact on manufacturing supply chains globally could be significant. But even countries that are less reliant on Russian gas are experiencing energy price rises with serious consequences for businesses. Pakistan has shortened its work week to lower energy demand. In Norway, fertilizer production has been slashed, affecting food supply chains.

U.S. retailers – from mass-market firms like Walmart to apparel companies like Gap – are cutting their sales forecasts and car makers in the UK are worried about their output. In southwestern China, car assembly plants and electronics factories have already started to close due to a lack of power. All of these disruptions will cause ripples along global supply chains.

4. Geopolitical uncertainty

The invasion of Ukraine is the root cause for much of the energy and food price inflation countries are experiencing at the moment. It has thrown supply chains into disarray this year, fueling a global food crisis. A fertilizer shortage is also limiting agricultural output in many countries. While some grain ships have now left Ukraine, unlocking important supplies that will address famine in countries like Yemen, this will not solve the global food supply crisis.

In other parts of the world, tensions between China and the U.S. that were already playing out pre-pandemic have continued. Recent Chinese military exercises in the Taiwan Strait following a visit to Taiwan by US House Speaker Nancy Pelosi disrupted one of the world’s busiest shipping zones in August. Any further escalation of tensions could disrupt, for example, supply chains that deliver semi-conductors used in computers to manufacturers around the world.

5. Extreme weather

Climate change is a much more long-running problem for supply chains. This year, extreme weather events, such as drought has caused water levels to drop around the world, impacting major shipping supply routes. Low water means ships can only carry a fraction of their usual freight to minimize the risk of running aground. While freight can be diverted to other types of transport, a single ship might require more than 500 trucks to move its cargo.

In recent months, parts of China’s Yangtze river, which is responsible for 45 percent of the country’s economic output, have been closed to ships because water levels are more than 50 percent below normal. Two thirds of Europe is also experiencing drought conditions, which are only expected to worsen. Meanwhile, the Rhine currently has so little water that some ships can only carry a quarter of their usual freight. The drought has also hit at a time when the Rhine and other rivers are needed to move high volumes of coal and gas to prevent energy shortages. Extreme weather events are becoming more frequent and more intense due to climate change. Predictions for extreme weather during winter 2022 include a more active than usual hurricane season, which could hit several key Atlantic Ocean shipping routes.

These five issues are likely to affect lead times in the delivery of products, particularly electronics or automobiles, that are produced in China and delivered to western markets. While shortages are unlikely, some products could take longer to reach stores this winter (and prices may be impacted) as a result.

Sarah Schiffling is a Senior Lecturer in Supply Chain Management at Liverpool John Moores University.

Nikolaos Valantasis Kanellos is a Lecturer in Logistics at the Technological University Dublin. (This article was initially published by The Conversation.)

Everything was about supply shortages in 2021. COVID vaccine shortages at the start of the year were replaced by fears that we would struggle to buy turkeys, toys or electronics for the holidays. For most of the year, retailers’ shelves, car showrooms, and even petrol stations were emptier than usual. Some shortages were resolved quickly, others linger. So, are we facing another year of shortages or will the supply chain crisis abate in 2022?

It is worth acknowledging that the shortages have happened for many reasons. During the early 2020 lockdowns, a sudden run on essentials, such as toilet paper and pasta, left shelves around the world bare. Singapore ran out of eggs as consumers hoarded them, for example, and retailers ordered more eggs, desperate to satisfy demand. But once the demand had been satisfied, there was suddenly an oversupply. In June of that year, distributors threw away 250,000 eggs.

This is what happens when demand temporarily changes. The effect magnifies with each tier of the supply chain as every supplier adds an extra buffer to their order to be on the safe side. Minute changes in customer demand can, therefore, result in huge extra demand for raw materials, giving rise to what is called the bullwhip effect. As with a whip, a small flick of the wrist can lead to a big crack at the other end.

The bullwhip effect can result from demand suddenly falling, as well as rising, and during the pandemic these forces have sometimes combined. For instance, a combination of the crash in demand for new cars and higher demand for devices like laptops and games consoles for lockdown entertainment contributed to the semiconductor-chip shortage.

With modern cars that sometimes contain 3,000 chips, car makers are major customers for chips, but as car sales plummeted in 2020, supplies of chips were redirected to manufacturers of smaller electronic goods. When demand for cars picked up again a few months later, there were not enough chips to go around. Carmakers were forced to stop production lines and could not make enough cars to satisfy demand. They also started hoarding chips, making the shortages worse.

Shipping shenanigans

Other imbalances in today’s supply chains are larger than competing companies or industries. Shipping containers move some 1.9 billion tons per year by sea. alone, including virtually all imported fruits, gadgets and appliances. Normally containers are continually loaded, shipped, unloaded, and loaded again, but severe trade disruptions resulting from lockdowns and border closures broke that cycle. Containers were left in wrong locations as trade shifted, shipping capacity was reduced and vessels could not land where and when they intended. Coupled with congested ports and problems with timely unloading and onward transportation, a typical container now spends 20 percent longer in transit than before the pandemic.

Unsurprisingly, shipping rates (and prices more generally) have soared in this environment. Prices on major east-west trade routes have increased by 80 percent year on year, which is bad news for economic recovery. Even a 10 percent increase in container freight rates can reduce industrial production by around 1 percent.

The human factor

Technological advancement may have reshaped manufacturing, but production and delivery still rely heavily on people. Waves of layoffs in production due to lockdowns resulted in labor shortages when demand picked up. To give one example, Vietnam – which is a major home for garment manufacturing, with factories in the country counting brands like Zara, Ralph Lauren, North Face, Lacoste and Nike as customers – saw a mass exodus of workers from industrial hubs to rural areas, which could not easily be reversed.

Worker shortages were also particularly evident with lorry drivers in the United Kingdom and other countries. The sector already struggled to recruit and retain drivers because of pressures of rising demand, an aging workforce and worsening working conditions. Meanwhile, Brexit has made it harder for migrant drivers to work in the UK.

There were at least early signs of the driver problems easing in the run-up to Christmas as more recruits came through the system, which will have been one reason why goods shortages were not as bad as they might have been. Equally, however, we should not expect a swift end to the supply chain crisis in 2022, as the omicron variant is leading to more staff shortages as people take time off sick and suppliers navigate new restrictions. China’s zero-COVID strategy is likely to continue to disrupt both production and transportation of goods, possibly for the entire year.

Large-scale supply chain changes

Yet, we might also see problems in the opposite direction, via another crack of the bullwhip. Back-orders in many sectors will have been filled, but consumer demand may well be cooling now that furloughs have ended, and interest rates are beginning to rise. So, some companies (including those in the apparel and footwear industries) might find they end up with an over-supply of goods. To avoid this, they will have to level their production rates with demand, but demand may still be difficult to forecast – and not only because of omicron and China. A new variant of concern leading to a new wave of lockdowns could easily result in people once again spending money on things rather than holidays and nights out.

Supply chains with good visibility of actual demand and clear communication across supply chain tiers will be at a considerable advantage. In sum, it is likely that different industries will experience both shortages and over-supply problems throughout 2022.

A longer-term issue is to what extent supply chains change. The pandemic has raised new doubts about outsourcing production to far-away countries with lower labor costs. Equally, problems were aggravated by strategies to maximize supply-chain efficiency such as just-in-time manufacturing, where companies keep inventories to a bare minimum to reduce costs.

A major theme of 2021 was how to make supply chains more resilient. But building additional capacity, holding inventory, and safeguarding against disruptions is not cheap. As shipping logjams ease and recruitment rises, the talk of reform could peter out. Some companies will probably continue to improve their just-in-time with a sprinkle of just-in-case. Others will bring production of some products closer to home markets while also keeping offshore production facilities to serve local markets. It also remains to be seen to what extent COVID reverses globalization.

Ultimately, supply chains are driven by people, and 2021 showed the limitations of the system. As companies and consumers adapt, current knots will untangle somewhat. But as the pandemic wears on and the realities of keeping businesses profitable come back to the fore, you probably should not expect a resolution in 2022.

Sarah Schiffling is a Senior Lecturer in Supply Chain Management at Liverpool John Moores University. Nikolaos Valantasis Kanellos is a Lecturer in Logistics at the Technological University of Dublin. (This article was initially published by The Conversation.)

From Food to Fashion, 5 Issues That Could Slow Supply Chains This Winter