U.S. Supply Chain Crunch

U.S. Supply Chain Crunch

Throughout the past 60 years, the microchip has influenced the manufacturing of a wide variety of products that touch nearly every consumer these days. From computers to cell phones to cars, the chip is now the most critical and costly component of modern-day electronic devices. However, the majority of chip production occurs overseas, which means that manufacturing and shipping delays caused by the COVID-19 pandemic have created a global shortage. Large corporations such as General Motors, Volkswagen and Samsung report that the current bottleneck in the supply chain could slow production for the rest of this year — or even longer.1

Delays due to the global pandemic have caused many supply chain problems in the past year. In a recent communication, big-box retailer Costco reported reduced deliveries of a number of popular products such as cheese, seafood, olive oil, furniture, sports equipment and gardening supplies. Basically, inventory shipping from overseas continues to be challenging due to freight container shortages and port delays. As a result, shipping costs have skyrocketed, with higher prices passed on to customers.2

In late March, the situation was exacerbated as the Japanese-owned container ship Ever Given got stuck in the Suez Canal for six days. This created a backup of more than 350 ships waiting their turn to sail through the narrow waterway. Freight vessels either had to wait in a holding pattern or reroute around the southern tip of Africa to get to their destinations.3

The Suez Canal sees approximately 10% of the value of global trade traverse its waters, which equals about $10 billion in goods per day. Economists say that the mere six-day holdup may lead to months-long further delays in the global supply chain. In the U.S., we may once again experience shortages of the universally coveted toilet-paper roll. While most imports from Asia to U.S. use the quicker travel route through the Pacific Ocean to California, parts that are shipped from Asia and assembled in Europe are likely to experience the delay of finished products delivered from Europe to the U.S.4

Fortunately, in response to global supply chain delays caused by the pandemic, President Biden issued an order for a 100-day review of the nation’s supply chains in February of this year. As part of his recently proposed infrastructure and jobs plan, Biden is looking to shore up reliable supply chains to help boost domestic manufacturing, especially for raw materials needed for advanced batteries, pharmaceuticals, critical minerals and semiconductors. The country’s current dependence on these imported goods poses both national security and economic risks. In response, Biden is looking to create more domestic raw material production opportunities and work with international suppliers to stabilize those supply chains.5

 If you are interested in discussing the global supply chain and its effects on your retirement, please give us a call. 

1 Ian King, Debby Wu and Demetrios Pogkas. Bloomberg. March 28, 2021. “How a Chip Shortage Snarled Everything From Phones to Cars.” https://www.bloomberg.com/graphics/2021-semiconductors-chips-shortage/. Accessed April 2, 2021.
2 Grace Kay. BusinessInsider. March 10, 2021. “Costco has a shortage of imported cheese thanks to shipping container constraints and delays at major US ports.” https://www.businessinsider.com/costco-cheese-shortage-shipping-containers-port-delays-supply-chain-2021-3. Accessed April 2, 2021.
3 Matt Leonard. SupplyChainDive. April 1, 2021. “Timeline: How the Suez Canal blockage unfolded across supply chains.” https://www.supplychaindive.com/news/timeline-ever-given-evergreen-blocked-suez-canal-supply-chain/597660/. Accessed April 2, 2021.
4 Paul Davidson. USA Today. March 27, 2021. “Suez Canal blockage could intensify shipping delays, lead to shortages of toilet paper, coffee and other consumer goods.” https://www.usatoday.com/story/money/2021/03/27/suez-canal-shipping-snarl-could-spark-toilet-paper-coffee-shortages/7030623002/. Accessed April 2, 2021.
5 Josh Boak and Tom Krisher. AP News. Feb. 24, 2021. “Biden orders a review of US supply chains for vital goods.” https://apnews.com/article/joe-biden-business-global-trade-health-coronavirus-pandemic-b08eb8f76932cc71049732ddd60a035d. Accessed April 2, 2021.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.
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