Some say records are to be broken, but when it comes to the global supply chains breaking records come with a very dark side. Only this year, supply chains were plagued by a myriad of disasters: the Suez Canal accident, interruptions caused by extreme weather, and most recently, port shutdowns drove by new virus outbreaks in Asian countries. Fresh data released by Resilinc, a global leader in the supply chain risk monitoring space, indicated that supply chain disruptions hit record-breaking levels in 2021, with the number of factory fires up by 150% only in the first half of the year. This marked the highest rate of factory fires ever reported.
The shocking increase is mostly attributed to gaps in regulatory and process execution, and also by a shortage of skilled warehouse workers. The data also exposes that disruptions caused by supply shortages skyrocketed by 638% just in the first half of 2021. In total, Resilinc already sent 251 supply shortage alerts this year, with this type of disruption ranked 6th in terms of most reported events. But shortages are the number one reason why business sales have been collapsing in recent months, and according to the report, almost half – or about 46.5% – of such disruptive events occurred in the United States in the first six months of 2021.
From January 1 to June 30, 2021, Resilinc issued staggering 5,425 alerts about supply chain disruptions across 39 event categories, with about 59% of them impactful enough to trigger prolonged interruptions that lasted for at least four weeks. Today, in the US, one of the main problems causing shortages is port congestion. There are still dozens of container ships waiting to undock in California ports. Industry experts say that it could take months for the backlog to be cleared, while inland logistics hubs are still crowded with containers that have yet to be loaded onto trucks to get to cargo ships and make their trip to their final destinations.
In addition to all that, a shortage of truck drivers is causing further bottlenecks at ports and inland rail hubs, as some warehouses are being forced to refuse delivery of new containers until backlogs could be reduced. All of this is severely aggravating the global container shortage, which consequently is pushing shipping prices for almost all trade routes to sky-highs. According to Xeneta, the average cost of shipping a container from China to the West Coast of the U.S. went from $1,794 last year to $11,594 this year. And those numbers represent an official average, but the truth is that new premium prices are negotiated on the spot, and some companies reported shipping rates of up to $33,000 from Shangai to Los Angeles this year. As a result, companies continue to struggle to ship their products overseas and to get their orders in time.
The imbalances on supply chains are threatening to derail the US economic rebound this quarter, as business activity and production have fallen 6.9 percentage points in August, new export orders dropped by more than five percentage points, and new orders faced a sizable decline, according to a report released by the Institute for Supply Management.
Moreover, shortages of materials such as plastics are pushing the price of a wide range of products to record-highs. “This started during the big freeze that hit Texas that disrupted the petrochemical industry along the Gulf Coast. It accounts for nearly 20% of the global ethylene production, and three-quarters of that production along the Gulf Coast was knocked out during the big freeze,” explained Wolf Richter. “The materials produced by it go into pretty much everything. All kinds of consumer goods, from water bottles to automobiles, all kinds of packaging, and all kinds of industrial goods, such as PVC pipe that is used in new construction,” the expert added.
All of this is happening at a time when consumer demand is being fueled by government stimulus, not just in the US but all around the world. The combination of artificially-fueled demand for goods and supply-chain problems is causing significant distortions in the global economy, and it is creating asset bubbles in the financial markets and threatening to trigger an inflationary spike like no other. The main problem is that as companies realized that they can charge more for the same products and consumers have been accepting those increases without a question, they will continue to get away with raising prices even after conditions improve across supply chains. That is how hyperinflation infiltrates global economies, and our future is going to be marked by it. On the other hand, wages won’t similarly hyperinflate, which means we’re headed to an era of economic deterioration while the price of everything continues to explode.
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