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Since the start of the pandemic, the system by which goods are manufactured, distributed, and sold around the world has faced disruption after disruption, from shipping delays to material shortages to factory closures. Now, during the busiest retail season of the year, the problems have only worsened. We asked Harish Krishnan, a professor of operations and logistics at the University of British Columbia’s Sauder School of Business, about the turmoil.
For starters, what is a supply chain and why have we been hearing so much about them?
There’s a huge global network of interconnected resources that exists to support the production and distribution of everyday items. A commonly used example is a pencil. It may seem like a simple object, but in order to make it, someone has to cut down trees, which must then be processed into wood; somebody has to mine graphite, which also has to be processed; then there’s the glue, the paint—the list goes on. In addition to the materials, there’s assembly, distribution, and warehousing. When it comes to more complex products, like iPhones or cars, it’s easy to see how much collaboration is needed to manufacture and distribute the goods we rely on.
What does COVID-19 have to do with all of this?
A disruption usually occurs on either the supply or demand side of things. Over the past decade, most of the issues have been supply related—due, in part, to environmental factors. The 2011 Fukushima earthquake, for example, created production problems for the automotive industry because many of the manufacturing giants are based in Japan. The same year, floods in Thailand, where a lot of hard drives are produced, affected the computer industry.
COVID-19 is unique because the initial disruption came from increased demand as consumption patterns changed overnight. Just look at toilet paper: suddenly, home-use toilet paper demand went up1 and office-use demand went down. Machines and production lines weren’t optimized for this. Now, nearly two years into the pandemic, we’re still experiencing widespread shortages of imported goods.
What are the broader economic implications of a supply chain disruption?
The supply chain crisis has been linked to inflation,2 and there have been concerns about whether that’s going to continue. The issue is that it becomes a self-fulfilling prophecy: if everybody expects prices to go up, prices are more likely to go up.
The other issue is the labour shortage. A lot of jobs linked to the supply chain have become less desirable due to low wages and poor working conditions. Take long-haul trucking: truck drivers tend to be older than the average worker, a lot of them are retiring, and there aren’t a lot of young people going into that industry. On a policy level, governments need to ensure that the supply chain is well cared for by providing better benefits and protections for workers.
What does all of this mean for this year’s Christmas shopping?
Since most goods are in higher demand due to lack of availability, there’s also been strain on the distribution side of things: shipping containers, trucks, and slots at ports are all in short supply, and the cost of shipping and distribution has gone up.3
Many electronics are manufactured overseas, so they’re most likely to be affected. Meanwhile, as CNN has reported, toy companies have prioritized manufacturing products that have higher value densities—like smaller, squishy toys—to make better use of limited cargo space.
This year, expect that you might not find everything on your wish list.
1. During March 2020, toilet paper sales rose by 845 percent, according to an estimate by Business Insider.
2. The Bank of Canada has estimated that inflation will near 5 percent by the end of 2021. In 2019, the increase was 1.9 percent.
3. The cost of shipping a twelve-metre container from Shanghai to Los Angeles increased by 238 percent over the past year, according to Drewry, a maritime-research consultancy.
As told to Laura Hensley. This interview has been edited for length and clarity.
