As the holiday shopping season begins to gear up, supply chain experts are advising customers to purchase gifts sooner rather than later because of logjams hurting the shipping system.
The COVID-19 pandemic created unprecedented supply chain snarls, and those jams, which feature soaring shipping costs, clogged ports, and insufficient store inventories, are still very much in play. As the United States inches closer to the holiday season and more spending, the strained supply chain will certainly threaten the delivery of goods meant to be presents.
Bobby Harris, founder and CEO of BlueGrace Logistics, told the Washington Examiner during an interview that the global supply chain is strained in “a manner we haven’t seen in decades” as Thanksgiving, Christmas, and Hanukkah loom.
“The year we’re in right now is unprecedented for sure,” Harris said.
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Harris said he thinks that, compared to last year, when supply chains were also stretched to their breaking point, more people realize there’s a risk of delays.
“Whether it’s ordering ahead of time or just managing their expectations,” he said, “I think you’re going to see buyer behavior change a little bit, and yet, you’re still going to see the people that typically wait a bit late into the season are going to suffer the most because there will be no coming back for them.”
The CEO, who oversees some 500 employees, advised U.S. consumers to purchase and ship gifts before Halloween, about two months before Christmas. If not before Oct. 31, presents should certainly be ordered before the first couple weeks of November are up, he said, adding that people should not be waiting until Black Friday this year.
One major strain on supply chains are clogged ports. The Port of Los Angeles, the busiest port in the U.S., has been plagued with congestion for much of this year and often has dozens of ships waiting to offload goods, much of which are imports from China. While port officials say more trucks are needed to help clear the backlog, truckers say the port isn’t moving fast enough to offload.
China, where many toys and gifts are created, has also been rattled by power outages as the country suffers an energy crunch. Those outages affect production at factories and will invariably lead to more supply chain disruptions.
China also has taken a much firmer stance against COVID-19 outbreaks than its Western counterparts, even to the detriment of its businesses.
The Chinese government recently froze all inbound and outbound operations at a crucial terminal of its Ningbo-Zhoushan port. The Meishan terminal, which services shipments to the U.S. and Europe, was suspended until further notice after a single worker there contracted the virus. More port closures because of virus outbreaks around the holiday season would result in supply chains fraying even further.
“If there is a shutdown, even a small shutdown, the ripple effect will be tremendous,” Harris said. He said that if a port or a portion of a port had to shut down for even a week, it would be “extremely challenging” on top of the existing shipping and logistical problems.
While demand for goods has increased substantially since the trough of the pandemic last year, because of labor shortages, there are a lot fewer workers to process that increasing demand.
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More goods are also likely to be ordered than last year as well.
Output has soared as the economy has rebounded from the pandemic shutdowns. The gross domestic product grew at a 6.3% annual rate in the first quarter and then 6.7% in the second quarter.
While the conventional wisdom was that after pandemic restrictions began to lift there would be a massive boom in the service and travel industries and not necessarily consumables, Harris said that instead, demand for both travel and consumables went through the roof. The economic gains are expected to have a direct impact on the supply chain, given that more items will need to be shipped.
“The amount of consumption is something that is kind of staggering,” he said. “You’re seeing a lot more money in everybody’s pocket … there’s no doubt that will have an effect.”
Prices will also be higher for those looking to purchase gifts this holiday season.
In addition to red-hot U.S. demand for consumer goods increasing the cost of manufacturing and shipping, energy prices have gone through the roof. The price of natural gas has charged upward over the past year by about 180%, the cost of crude oil has more than doubled since this time last year, and coal is trading three times higher than the end of 2019.
Higher energy prices translate to higher prices of consumer goods because the increased costs have to be made up for somehow, which ends up coming back to the sticker price of the goods being shipped.
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Given that vaccinations are in full swing, this year will be the first since 2019 that many families get to celebrate the holidays in person. For families eager to exchange gifts this holiday season, the best advice from supply chain experts is simple: Buy sooner rather than later.