Inflation impact on Supply Chain

The current economic situation has been quite challenging for the supply chain industry. Most product shelves around the nation are vacant, and inflation is mostly to blame for it. However, other factors pile up to make the supply-chain situation worse. The global supply chain crisis is an economic fallout that is impacting many people and businesses today.

Global Supply Chain Crises Overview

As products begin to empty out on the shelves, they are likely to be gathered up inside containers, untouched by the logistical end of things. Warehouse union leaders agree that some of the containers have been sitting in warehouses and docking spaces for weeks. What’s more, companies are unable to move or deliver the products to their rightful retail locations.

Many freight managers are waiting for truck drivers to show up and put in orders so that the logistical process can come to fruition.  The crisis at hand is getting worse, and it does not seem to be ending any time soon. Global supply chain issues such as these tend to impact the distribution of goods internationally.  These effects are quite visible in the US today due to increasing prices and product shortages.

What is Behind the Supply Chain Disruption?

As situations begin to worsen, many people turn to the supply chain, logistics, and freight management sectors for answers. However, is that sector really to blame? It is fair to say that as distributors are unable to make timely deliveries of essential items, many industries have had to stop their processes.

The strange thing about this crisis is that it is not stemming from a loss of manufacturing goods. In fact, there are plenty of supplies inside containers which are enough to fulfill the growing demands of the holiday season.  The problem hence comes about in the form of freight management, delivery, logistics, and a shortage of trucks.

During the pandemic, inflation hit the economy, and consumers were not buying products with the same capacity. These were the times when truck drivers were keeping the economy afloat and making important deliveries for essential means of commerce.

As the pandemic restrictions eased, people were now equipped with the government stimulus checks and a holiday season ahead. Therefore, the people exercised high volume spending, which put a burden on the logistics and freight management sector, despite no shortages on supplies.

Watch CBS News 60 minutes “What’s caused America’s supply chain crunch?”

60 Minutes follows the U.S.’ struggling supply chain, from choked ports on the West Coast, to packed rail yards in Chicago. Along the way, we found finger-pointing, huge profits, and massive losses.

Trucks are Integral to the Supply Chain

The first step in the supply chain management procedure is to get the international container off the vessel and into the port. Then, you need a trucker to come into the port and move the container into another warehouse. Another trucker then picks up this container, and then it moves across countries to its designated distribution center.  Thus, trucks are essential to the supply chain infrastructure, and this is why a shortage of trucks contributes a huge impact. Another shortage that plays a part in the supply chain break out is the national labor shortage.

Supply Chain Induced Inflations are a Problem

Ultimately, inflation that happens due to the supply chain disruptions is very different from other inflations, such as demand-induced inflation.  This is not a problem that you can look at from a fiscal or economic lens. In other words, you cannot expect supply chain disruptions to go with an introduction of a large-scale monetary policy. Instead, governments have to seek to manage the supply chain and freight management sector and fix it.

Repairing the supply chain is costly and painstaking for governments, and building freight infrastructure, such as shipping containers, ports, and truck capacities takes billions of dollars. Another interesting thing about supply disruptions is that they do not impact all sectors and industries equally. One small shortage of an essential item can lead to other problems in the industry.  For instance, a computer chip shortage in the markets can impact both the software and automotive industry.

Navigating Way-outs

In the situation of crises, it is very difficult to find ways out for companies and businesses facing significant shortages. Even if you find companies trying to bypass certain supply chain problems, you will come to know that they are chartering their ships to fill the supply chain issue.  Even in that case, businesses still have to rely on the same ports and freight services.

Logistical Cause

Cargo ships and freight carriers are stranded out at port and unable to dock and unload their goods. One of the reasons for such occurrence can be pinpointed to a logistical cause. To understand how, you have to realize that three international conglomerates control about 80 percent of the world’s shipping.  Therefore, it does not take many disruptions to destabilize the shipping system.

International shipping has always been a just-in-time mechanism. This allowed the logistical undertakings to be very price efficient. However, when the pandemic hit, some ports just closed down. This meant that all shipments sailing through had no option but to stay afloat without ever unloading.

When you pair this issue with other underlying inflation-induced factors such as worker shortages, product shortages, and high demand, it leads to the perfect environment for a breakout. In other words, there is increased demand, and the logistical system is not in the best shape to accommodate it.

Supply Chain Strategy in the Face of Inflation

With all that is happening, businesses need to be very careful when formulating a supply-chain strategy. Inflation should be taken as the necessary point of concern. Traditionally, supply chains were made to handle efficiency and appreciating costs, but with the onset of supply shocks, businesses faced several difficulties.

Today, inflation has a much bigger economic impact than it ever has before. Supply chain management systems must prepare for unexpected inflations that manifest in the uncertainties of the 21st century. Each business that wishes to survive must take a strategic approach to inflation and prepare a risk assessment plan to mitigate the negative impacts.

Concluding Thoughts

Business leaders must be more thorough and systematic when managing the supply chain sector. In the face of unwanted scenarios, delaying will only worsen situations, which is evident when you look at the current condition. Instead, one must act vigilantly when making important decisions.

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