supply chain traffic jam

remember the toilet paper rush in the US that grabbed headlines? a year later, those scenes may return.

a fresh outbreak of Covid-19 at one of China’s (and the world’s) busiest ports is causing global shipping delays. this time it is more than toilet paper. semiconductor chips are the worst affected. the resurgence of the pandemic in countries like Taiwan and Malaysia is only making things worse.

why does it matter?

most electronic devices nowadays use chips. so do automobiles, medical devices, industrial equipment, and more. also, raw materials and goods sitting in storage gather more than dust. they add to the cost, and cause a backlog in the production cycle, leading to more delays.

the last time you heard about a traffic jam in the supply chain, quite literally, might have been the Suez Canal incident. while it made excellent meme material, it also caused an estimated $54 billion in trade losses.

this time, the crunch is hitting Asia, which undertakes a majority of the world’s manufacturing. despite the US and the rest of the world trying to reduce their dependence on China and others in the region, Asia’s share of global exports is only going up. Taiwan makes 20% of the world’s semiconductor chips. China’s output is nearly 30% of the global manufacturing industry.
the longer these take to reach the market, the higher the economic impact will be.

what does it mean for you?

your favourite smartphones are going to get costlier and go out of stock much quicker. along with televisions, refrigerators, ACs, speakers, cars, and a lot else. it’s simple economics. if supply reduces while demand remains more or less the same, then prices go up.

we’re already seeing the impact in the market. automakers have implemented multiple price hikes over the past year-and-a-half. partly due to a shortage of chips, and partly due to raw materials such as steel getting costlier. Apple is facing supply shortages of components for its latest iPad Pro and MacBook models. there are long waiting lists for Sony’s PlayStation 5 consoles, and it could get worse. even Starbucks and many Boba tea businesses are running dry on several ingredients.

the semiconductor shortage is expected to last until 2023. the shipping delays are a little more unpredictable, dependent on various factors from the pandemic to the availability of shipping containers. the next couple of years certainly won’t be smooth sailing.