Anyone who has shopped nearly anywhere in the United States lately has likely noticed higher prices on their favorite products. While inflation usually can’t be attributed to just one thing, officials in various industries – from retail to manufacturing – agree that the rising cost of goods can easily be attributed to logistics and transportation woes.
Like many things in life, the issues involving logistics and inflation are not linear. They are more cyclical in that as the costs in one area force rising costs in other areas, and then it turns around and causes more rising costs. Confusing? We agree. We’ll try to explain:
Say, for example, delays in getting parts required to build a specific product subsequently delay the manufacturing process. Supply and demand make the price of the parts higher, thus raising costs for manufacturers. The manufacturer must raise its prices to account for its increased costs.
With the influx of items coming in, the logistics industry has struggled to keep up with deliveries, as is evident in the shipping backlog in California. This all makes the manufactured goods late to their destination (either the store or distribution center). The cost to pay drivers, rising gas prices, and other transportation factors make the retailer and consumer’s costs skyrocket.
When stores have to pay more for their inventory, those costs get passed on to the consumer. Add to this the surge in businesses having to hike their wages to be more competitive for people coming back from pandemic layoffs. All those costs get passed on to the consumer in one way or another. When consumers have to pay more, they have to charge more for their services or products to make a living. Eventually, it comes full circle because everyone is paying more as the costs keep getting passed down the line.
This article in the Los Angeles Times talks about the issues plaguing the supply chain and their effect on the economy.
“Prices are higher for many things. The shortages and the heavy demand for shipping have combined to cause freight costs to skyrocket; the cost to move a container from China to the U.S. West Coast is four times what it was a year ago and more than ten times what it was before the pandemic,” the article states.
What’s causing the issue?
The easy answer is COVID. While it seems like an easy scapegoat, the pandemic really has wreaked this much havoc on supply chains across the globe. Between factories being shut down and just in recent months starting to produce again, to rising demand for certain goods related to the pandemic, the supply chain is in a bottleneck.
What’s even more concerning is, many economists are less certain that the economy will pull out of its COVID-related issues anytime soon. In fact, there has been talk that the worst isn’t even here yet. In this article in the New York Times, “Phil Levy, the chief economist at the logistics firm Flexport, said his company expected supply chain issues to begin easing next summer at the earliest. But as labor issues bubble up at long-overburdened ports, that could take even longer.”
To be fair, we can’t blame all the logistics issues on COVID. In some cases, the pandemic revealed weak spots in the supply chain that the industry now has the opportunity to correct. Also, the driver shortage that is causing severe problems across the world was well established before the pandemic began.
We at On Time Logistics monitor fuel prices and other financial indicators to help predict changes in our costs. This allows us to be more proactive rather than entirely reactive. As logistics continue to be a challenge worldwide, we work hard to keep our prices better than competitive to serve our customers best.