Supply Chain- Cause and Effect in 2021

 

Global supply chains were first thrown off their axes more than 15 months ago when Covid emerged in the city of Wuhan and Chinese manufacturing ground to a halt. Today we still endure the aftershocks of that initial Chinese lockdown, and their disruptive effects on global supply chains are now compounded by new shocks created elsewhere (the Texas winter storm being just one example). How unusual are the current shipping and manufacturing challenges? Lars Mikael Jensen, the head of Global Ocean Network at the world’s largest shipping company, A.P. Moller-Maersk offered the following summary in a March 6th New York Times article about the global shipping crisis:

I’ve never seen anything like this. All the links in the supply chain are stretched. The ships, the trucks, the warehouses.

The stretching Mr. Jensen refers to is apparent in recent data from the Port of Los Angeles, the largest port in the United States. As of March 2020, the 12-month average number of loaded containers arriving in LA was a little less than 378,000 units. Through March 2021, that average figure is now just above 436,000 units, amounting to an increase of 123 percent from last year!

The massive growth in inbound, loaded containers is largely the result of numerous American industries coming back online as the Covid threat wanes (and households spend the piles of cash they accumulated through stimulus). But what can we make of the increase in exported empty containers? Like other industries, container manufacturers scaled back production in 2020 in anticipation of declining trade and consumer demand. Now, with global demand surging, ports around the world can’t find containers fast enough to meet demand, driving shipping prices sky-high and leading shipping companies to send their empty containers to the ports with the greatest demand (and highest prices). The increased cost of transporting goods between countries, layered on top of dozens of industries competing for a limited supply of goods has led to huge price increases for the inputs necessary for production. Since December, core HVACR commodities like copper, steel, and plastic have seen their prices increase by an average of 55 percent, leading to a 3.4 percent increase in the prices manufacturers charge distributors (with more price increases on the horizon).

Fortunately, despite the price increases and limited supply of the key components necessary for production, HVACR manufacturers and distributors have broadly managed to meet contractor demand and weather the current storm. According to the latest data from HARDI’s monthly distributor sales survey, wholesale distributors saw their annual sales increase by 8.8 percent in March, and average inventory levels grow by 16.1 percent. Although a long road remains between us and a more stable pattern of supply and demand, that distributors have been able to build up their inventory despite chaotic economic forces bodes well for what is likely to be a busy summer season.

Contributed by Tim Fisher, HARDI,Team Leader, Market Intelligence