To understand how America’s supply-chain nightmare is affecting everyday life, the experience of two owners of a pair of full-service restaurants in Northeast Florida is telling.
“Every order we place, we get a report,” says one of the owners, both of whom requested their names not be used in order to discuss the issue freely. “This is not available or that. Prices are anywhere from 30% to 100% above previous levels.”
And it’s not just food. Something as prosaic as containers for takeout meals, or for storage, their “costs have doubled or tripled.”
Sure, the owners have increased prices, “but we can’t raise them at the same rate as costs go up,” he says.
Nearly two years ago, when the coronavirus was declared a global pandemic, the restaurants faced mandated closures.
“We laid off all but five employees, we went from roughly 120 to five,” the owners say.
The pair rehired as best they could, but some of the help moved on to other jobs, retired, got sick and otherwise were unavailable to return. Those who came back had to be paid more amid a tight labor market and rising inflation. Servers are earning approximately 24% more, while back-of-the-house staff have to be paid 40% more.
Menus were changed. New Year’s Eve saw no lobster – at $40 a pound, it was deemed too expensive to put on the menu.
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“We used to recycle our cardboard,” says one owner. “We got a call a few months ago saying they don’t have the staff to come pick it up,” she says.
While a microcosm of the problems affecting the post-pandemic economy, the experience is being writ large across the county.
Murali Patnam works with restaurants of all sizes as a vice president and general manager for NCR Hospitality, and he says larger outlets have been overhiring to compensate for the turnover they have come to expect.
“One of my customers said they are overhiring by 20%.”
Others, like the owners in Florida, are trimming menus, or curtailing services like online ordering or catering events. The arrival of omicron threw many a “curveball,” Patnam says. “They were adjusting to the new normal. But then restaurants that do catering or big corporate lunches, they were getting canceled.”
Paul Featherstone, an entertainment industry veteran who started a small business providing pop culture toys, ‘80s movies and anime items to mega retailers such as Walmart, Amazon and Target, says while he has been able to maintain his supply lines, his world has changed.
“The big challenge continues to be the freight coming in and out,” he says. “We’re having to work further out. It leads to a cash flow crunch. We’re stuck in the middle. Whether we ship it to Walmart or not, our suppliers have to be paid.”
There are encouraging signs that some of the supply bottlenecks have eased.
A new index compiled by the Federal Reserve Bank of New York, the Global Supply Chain Pressure Index, found suggestions in early January that “global supply chain pressures, while still historically high, have peaked and might start to moderate somewhat going forward.”
The American Trucking Association last month issued its annual industry outlook covering the years 2021 to 2032. “After falling 6.8% in 2020, freight volumes are set to surge 7.4% this year (2021) – and we will see continued growth in freight demand across all modes for the foreseeable future.”
And, in November, America’s trade deficit with the rest of the world widened by $13 billion, according to an analysis by economists at Wells Fargo, who concluded, that “strong imports continue to reflect the more robust recovery in the United States but are also a sign of incremental improvement in easing supply chain constraints.”
“Imports of semiconductors rose by the most in eight months,” Wells Fargo noted, a welcome trend if it sticks since chips have been in short supply throughout the pandemic, affecting a wide range of industries from the automakers to tech companies
But, in some instances, the problem has just moved downstream. Goods begin to move more freely from the ships to the containers to the trucks. Then a snow and ice storm in the mid-Atlantic brings traffic to a standstill along Interstate 95 and fully stocked trucks are lined up at rest stops like 737s awaiting a landing gate at LaGuardia Airport. On a recent weekday, a local grocery store had only five small packs of chicken left on the shelves as the morning truck did not show up on time.
That has left consumers angry, pointing fingers at politicians, and blaming everyone and everything from Joe Biden to China to lazy workers and a greedy corporate America.
“I don’t think you can point a finger at just one factor,” Featherstone says. “The system is just so fragile anyway. For stores, “the challenge they are facing is the last 50 feet. If they are stocking shelves, they can’t be helping (customers) find something or checking you out.”
Featherstone and others say communicating with customers and suppliers has been key to managing through the crisis.
“Most customers understand that there are supply issues,” says Joe Camberato, CEO and founder of National Business Capital, which helps small businesses like Feathersone’s Think 3Fold, get financing. ‘They get it.”
Just a few years ago, the just-in-time inventory system was the marvel of the modern economy. Companies pared their supplies on hand, reducing the costs of holding inventory and boosting profits. If something runs out, it could be ordered and delivered the next day. Americans became conditioned by the Amazons and Walmarts of the world to expect anything they wanted within 24 hours without having to leave their homes.
But the system was only as good as its weakest link – and that turned out to be a global health pandemic that continues to cause havoc. Add in the human factor – millions dead worldwide, workers walking out, conflicting messages from governments and politicians over how to behave – well, then you have a once-in-a-lifetime scenario.
America did not know it, but like black ice on the highway, the problems were there but unforeseen in the years leading up to COVID-19.
“Pre-COVID, you had Brexit, China trade issues and tariffs, weather, two of the biggest canals in the world had ships stuck in them,” says Dan Swan, who leads McKinsey & Co.’s global operations practice. “There was just a lack of resilience.”
Then there is the labor market, which has suffered a historic shot just as other issues began to surface. An aging population, the onset of baby boomer retirements, restrictive immigration policies and a declining birth rate have all conspired to leave the labor market millions shy of the number of workers needed to do all the work. It is not a situation that will suddenly get better after COVID-19 is long gone either.
“My biggest concern is that we are seeing a problem in generating products,” says Ron Hetrick, senior economist at global labor market data analytics firm Emsi Burning Glass. “If labor is a key component to producing goods and we have these record numbers of job openings in manufacturing, then we know that many products that need to be made just aren’t.”
The final straw might well have been the government, which pumped trillions of dollars into the economy in 2020 and 2021 to stave off the effects of the pandemic. It worked to make the sharpest recession in modern history the shortest but it laid the groundwork for a massive surge in demand. Americans rushed to buy bigger houses, larger appliances, new laptops, furniture for the larger homes, golf carts, et cetera. The shift to purchases of goods from services like doctor’s appointments, haircuts and the like was unprecedented – just as the rest of the world began closing factories and ports to deal with the pandemic.
Just how much the demand, especially for goods rather than services, soared can be seen in the fact that the amount of freight carried by the for-hire transportation industry, which excludes freight carried by companies that maintain their own fleets, actually increased for three consecutive months through November. While it remains 1% from its pre-pandemic reading in November 2019, it was 3% higher than in the same month a year ago.
“I expect progress to be made in the second half of this year mainly, progress,” Powell said. “If you look at a ton of metrics, you can find some that suggest that delivery times are shorter and inventories in some industries are moving up. But overall, we’re not making progress.”
In fact, some experts think a rethinking of the global supply chain may be necessary and recent announcements such as that by chipmaker Intel that it will spend $100 billion to build the world’s most advanced semiconductor manufacturing complex in Ohio are a sign of that.
Other major chipmakers, including global giants Samsung and Taiwan Semiconductor Manufacturing have announced new investments in the U.S.
“We still have years in front of us before we’re even having a semblance of supply demand balance,” Intel CEO Pat Gelsinger said during the announcement. “Ask yourself what portion of your life is not becoming more digital.”
