MR_supply chain crisis

The chain game

When stay-at-home orders began, the combination of businesses temporarily shutting down and people shifting their shopping online created a domino effect. At the time, the expectation was that brands would be able to catch up with any backlog of online orders in a matter of weeks.

Instead, early bottlenecks cascaded into systemic failures: a never-ending game of supply chain whack-a-mole. A brand might have been able to circumvent a shortage in aluminum cans by using glass jars instead, only to see the price of glass steadily jump 10% over the course of a year.

Raw materials get harder to find

Factories struggle to stay open

To give a sense of the full scope of challenges companies have faced during the course of the coronavirus pandemic, Modern Retail created this illustrated guide to the supply chain crisis, and how brands and retailers have fared every step of the way. The supply chain crisis is far from over, and more problems may be on the horizon.

urrently at the ports of Los Angeles and Long Beach — which receive 40% of shipping containers that enter the U.S. — there are only a limited number of cargo ships and parking spots. On January 7, there were a record 105 container ships waiting to dock in those ports. “The issue right now is transit,” Immi co-founder Kevin Chanthasiriphan said. His saga is illustrative of the growing problem.

Immi, a ramen brand, sources materials from various countries in Asia and Europe. Chanthasiriphan said that Immi’s longest-ever shipment took over 77 days compared to an original estimate of 35 to 37 days. For now, the company is mainly trying to mitigate port delays by buying more raw materials in advance, staying in closer communication with suppliers, and considering less than-container-load shipments.

But delays are far from over. The labor union that represents dock workers at ports across the West Coast is negotiating on a contract that expires in July. If the union doesn’t come to an agreement, they could be short-staffed at a critical time.

Traffic jams at ports

he American Trucking Associations projected in 2021 that the U.S. would have a shortage of 80,000 truck drivers. The shortage could surpass 160,000 by 2030. The truck driver shortage has been around for decades now, but the pandemic only exacerbated the issue.

Many drivers retired sooner over the last two years, said Patrick Penfield, professor of supply chain management practice at Syracuse University. Empty shelves and late orders were some of the prevalent byproducts of the shortage. Grocers were some of the businesses that have been most vulnerable to the trucker shortage largely due to the short shelf life of food supplies, Penfield said.

Some retailers have taken the problem into their own hands. Dollar General has built out its own trucking fleet since 2016 and expanded last year, offering a $5,000 sign-on bonus to truckers General Mills said it expects the challenges to continue. “There is a shortage of truck drivers here in the U.S. and that's not going to abate for a while,” CEO Jeff Harmening recently said.

Truckers become scarce

hroughout the pandemic, the cost of raw materials skyrocketed. The problem brands face has been two-fold: one, it is taking longer for brands to get their hands on packaging and raw material, and it is getting more expensive. According to the U.S Bureau of Labor Statistics, the costs of raw materials for corrugated boxes increased by over 25% between 2020 and 2021.

The long lead times have led some retail businesses, like Brooklyn Candle Studio, to stock up on glass vessels, jars and accompanying metal lids months in advance. “Last year, and even early this year, we purchased our raw materials in much larger quantities than usual,” said founder Tamara Mayne. “Costs are rising continuously across all our supplies.”

It’s not just packaging. Fruit and sugar, among other agricultural ingredients, have been impacted by labor shortage and higher-than-usual retail demand. According to the World Bank, in January agricultural commodities rose 4.2% compared to the same period the previous year. Put together, finding and stocking up on raw materials is draining on cash flow.

anufacturing, meanwhile, has been hampered by everything from pandemic-caused shutdowns to worker shortages. Keeping factories operational remained a struggle in 2021. As coronavirus infection rates continued to rise around the world, countries like Vietnam decided to temporarily shutter businesses like factories to slow the rate of infections.

or consumers, the most visible delays were in getting their packages from FedEx, UPS, or USPS. According to one count, more than one-third of first class mail sent during a two-week period in December 2020 was late. As a result, brands and retailers have tried to diversify the last-mile carriers they relied on.

Startups like the coffee beverage Taika began using services like Ohi, which provided same-day deliveries in cities like New York and LA. Retailers like Bed Bath and Beyond signed on last-mile partners like Shipt and Postmates to ensure more timely deliveries. This has resulted in a growing last-mile delivery landscape that’s receiving more venture capital interest.

Fulfillment service ShipBob raised $200 million in 2021 and competitor, ShipMonk raised over $300 million over the last two years. "[Brands are] outsourcing fulfillment to a company that is familiar with the prices and has the flexibility to relocate," Rachel Binder, managing analyst at CB Insights said. That, along with the rise of near-instant delivery, "is setting a tone for other parts of retail."

More last-mile delivery

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The shortage of paper, glass and raw materials has upended manufacturing

Meanwhile some production plans in the U.S., like John Deere, were impacted by worker strikes. The manufacturing lead times from partners of direct-to-consumer furniture brand Modloft first “doubled” then “ballooned four times,” Modloft’s founder Ted Toledano said. Coronavirus-caused factory outbreaks – and subsequent shut downs – “had a tremendous negative impact” on the brand’s product supply.

Pre-pandemic, Modloft spread production across multiple continents, building products “in the countries of origin that specialize in those raw materials” like glass in Italy or wood in Brazil, explained Toledano. However, increased manufacturing and shipping times convinced Toledano to begin centering Modloft’s production elsewhere. Currently, Modloft has moved 20% of production to the U.S. or Mexico. “We wanted to at least get physically closer to our shores,” said Toledano.

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