Effects of the 2021-2022 Global Supply Chain Crisis

Effects of the 2021-2022 Global Supply Chain Crisis

The causes of the global supply chain crisis that started in 2021 and persisted in 2022 have been attributed to the disruptions and backlogs caused by the COVID-19 pandemic and further to major global events such as the escalation of the Russia-Ukraine Conflict following the invasion of Ukraine by the Russian Armed Forces and persistent problems such as extreme weather events due to the ongoing climate emergency.

It is still true that the crisis cannot be pinpointed to a single origin. Even the previous trade war between China and the United States has played a significant role and the impacts of non-state actors in global trade and economic globalization. However, what is clear are the so-called effects of the 2021-2022 Global Supply Chain Crisis and the more specific macroeconomic impacts, as well as the impacts on different industries, sectors, and markets.

Exploring and Explaining the Effects of the 2021-2022 Global Supply Chain Crisis

Shortage of Goods and Unfulfilled Online Deliveries

Two of the most immediate and less critical impacts of the 2021-2022 Global Supply Chain Crisis were the temporary shortage of certain goods in several countries and out-of-stock message alerts received by global online shoppers.

In the United States, the crisis is one of the major contributing causes of the shortages in infant formula and tampons beginning in the second quarter of 2022. There is also a potato shortage in Southeast Asia that has prompted fast-food chains such as McDonald’s and KFC to limit how much French fries a single customer can order from their stores.

The aforesaid problems stem primarily from the pandemic-related disruptions in specific supply chains. For example, during the earlier phase of the global health crisis, consumers in the U.S. hoarded stockpiled infant formula. However, when demand eased, real-time sales fell and it became difficult for producers to plan their manufacturing schedules.

With regard to the shortage in potatoes used for French fries, the subsequent waves of the pandemic due to the Omicron variant of SARS-CoV-2 resulted in labor shortages in logistics and transportation, as well as port congestions due to increased customs checks.

Unfulfilled online order deliveries were also prevalent during the last quarter of 2021. A report from Adobe Digital Insights noted that there were hundreds of millions of online customers around the world who received out-of-stock prompts for items such as consumer electronic devices, jewelry and apparel, pet supplies, and home and garden accessories.

2020-Present Global Semiconductor Chip Shortage

One of the more serious effects of the 2021-2022 Global Supply Chain Crisis is the global shortage of integrated circuits and semiconductor chips. The crisis started in 2020 as an offshoot of the COVID-19 pandemic but has endured to 2021 and further in 2022.

The shortage represents global demand exceeding supply due to the inability of manufacturers to increase their production outputs. Commonly cited causes of this global crisis include not only the pandemic but also the trade war between China and the United States, the conflict between Russia and Ukraine, and several severe weather incidents.

Analysts explained that the pandemic increased the demand for computers, consumer electronic devices, and network peripherals following prevalent remote work and online learning setups across the world in response to the lockdowns. Chipmakers also ceased their operation and production during these lockdowns, thus depleting their inventories.

The trade restriction imposed by the U.S. Department of Commerce on Semiconductor Manufacturing International Corporation, one of the largest chip manufacturers in China, in September 2020 strained the capacities and supplies of other chipmakers.

Separate instances of severe weather events and persistent conditions in facilities owned by Samsung, NXP Semiconductors, and Taiwan Semiconductor Manufacturing Limited affected their regular operations and pushed back supplies by several months. The Russia-Ukraine conflict also affected the global supply of key production inputs used in chipmaking.

Researchers at Goldman Sachs revealed in a report that that shortage affects more than 169 industries. These range from the more obvious manufacturers of processors and graphics cards, as well as automakers and producers of video game consoles, to the manufacturers of appliances, other consumer electronic devices, and even optical instruments and steel.

The shortage has fundamentally decreased the manufacturing capabilities and sales revenues of companies operating within affected industries. AMD and Nvidia have struggled to keep their best-selling and flagship graphics cards on shelves due to low stock. Automobile production in the United States declined in 2020 and persisted beyond 2021.

Increasing Business Costs and Global Inflation Surge

Another impact of the 2021-2022 Global Supply Chain Crisis is the costs associated with production. Of course, a disruption in critical production inputs would result in opportunity costs from production setbacks and inventory costs from unfinished outputs.

Even businesses involved in the importation and distribution of consumer goods have been affected by the crisis. For example, sellers on e-commerce platforms such as Amazon have experienced a steep increase in their operational costs due to the higher prices of products they ship from countries such as China and the costs associated with the shipment.

The disruption of the global supply chain is also one of the salient factors contributing to the 2021-2022 Global Inflation Surge. Basic economics explains that consumers are willing to pay more to obtain items in short of supply. This is demand-pull inflation.

Furthermore, note that cost-pull inflation is another theory of the causes of inflation. This happens when producers pass unto the consumers the increasing costs of their business operations and production through price increases. Remember that the disruptions in supply chains have increased the costs of acquiring raw materials.

A more suitable concept called supply chain inflation can also explain how the current crisis affects the prices of consumer goods. Accordingly, because of the interconnectedness of the global supply chain, when one price goes up, others tend to follow.

There seems to be an interlocked circular relationship between the 2021-2022 Global Supply Chain Crisis and the 2021-2022 Global Inflation Surge. These separate events are too interrelated to such an extent that both complement one another. Remember that disruptions in supply chains strain producers while inflation affects consumer demand.

FURTHER READINGS AND REFERENCES

  • Adobe Communications Team. 2021. “Adobe: Shoppers Have Seen Over 2 Billion Out-of-Stock Messages Online.” Adobe Blog. Adobe Digital Insights. Available online
  • Hari, T., Yuzawa, K., and Hall, R. 2021. “The Global Chip Shortage: Impact, Outlook, and Recovery. Exchange at Goldman Sachs. Goldman Sachs. Available online
  • Koh, A. 2022. “French Fry Shortages Go Global On Supply Chain Disruption.” Bloomberg. Available online
  • Somasundaram, P. 2022. “What You Need To Know About The Tampon Shortage.” The Washington Post. Available online
  • Thompson, D. 2022. “What’s Behind America’s Shocking Baby-Formula Shortage?” The Atlantic. Available online.