The Cost of Covid: Supply shortages due to the global pandemic

The Covid -19 pandemic ceased trade for many industries due to the sanctions put in place when lockdown started in March 2020. The global workforce either had to adapt to working from home, being furloughed or made redundant.

Production factories were closed which meant that there was an unexpected decrease in supply of products and commodities. Low inventory among high demand have met serious supply chain issues for garage doors, computer chips, lumber, toilet paper, bicycles, baby formula, motorcycles, potatoes, cream cheese, gas, coins, bubbly, chlorine, maple syrup, blood and Christmas trees.

Fast food restaurants across the world are experiencing a shortage of French fries. The United States is one of the largest producers of potatoes globally. Due to the pandemic, U.S. farmers were forced to destroy hundreds of tonnes of potatoes in 2020, and the supply has not fully recovered yet.

On top of that, supply chain issues have hampered the exports of this year’s crop. Fast food chains from Kenya to Japan are scaling back on French fry orders. Japan is the largest overseas marker for U.S. potatoes, accounting for $342 million in exports.

Frozen potato products such as French fries account for nearly two-thirds of those exports. Japan homes more than 3,000 McDonald’s franchises and they were forced to restrict French fry orders to just the small size for the foreseeable future.

Global Chip Shortage 

The global chip shortage which started in 2020 and has affected more than 196 industries is still in effect to this day with little signs of improvement. The world will have lost 11.3 million units of production in 2021 because of the chip shortage, according to AutoForecast Solutions. Drive by any almost empty dealer lot to see what this looks like on the ground. The impact could be another 7 million units in 2022 and 1.6 million in 2023, IHS forecasts.

Supply Chain Disruption

Global supply chains were severely affected by the pandemic’s ripple effect. Shipping ports that shut down early in the pandemic faced cargo bottlenecks when they reopened, leaving stacks of cargo waiting to be shipped. Supply chains have not recovered, and ongoing worldwide labour shortages aren’t helping either. Unfortunately, these problems will take some time to resolve themselves.

Lowest levels of car production for any July since 1956, UK industry reports as chip shortage continues https://t.co/AWSczD9ESJ

— Prof David Bailey (@dgbailey) August 26, 2021

Video Games

As discussed in our podcast The Cost of Covid, we discuss the affects of the pandemic on the gaming industry.

In 2020 Sony and Microsoft announced their next upcoming consoles which would be released later in the same year. This is pivotal time in console releases, this is typically where either Sony or Microsoft cement themselves with having the more successful console which will affect business for the next upcoming years.

However, this year when both consoles released both companies failed in meeting public demand. Two main reasons; Scalping and lack of production due to global chip shortage.

Due to an overall lack of consoles being made scalpers took advantage of high demand, brought all available consoles, and jacked up the price to almost double the retail price (retail price of the PS5 is £499, thanks to scalpers almost reaching £1k).

Due to lockdown happening during the same year (in case you forgot about that) more and more people were confined to their houses with a lot turning towards gaming to pass time and be their form of escapism, unfortunately most people were redundant with less funds than usual, more time on their hands and no chance of buying a new console to help them cope with the lockdown.

The year is 2022 and to this day it is still almost impossible to buy a PS5. Whilst it sold well for Sony it says collecting dust in scalpers garages so hardly anybody has one, not only did the global chip shortage effect just consoles but essentially making it hard to also buy pc parts (pc gaming being the alternative to console gaming).

Construction Materials Shortage 

One of the industries most affected by COVID shortages is the construction one.

ONS report inventories of construction industries are at their lowest point since the 4^th quarter of 2019. Many British property developers noticed an increasing difficulty in getting products. Among the materials that have been difficult to acquire are bricks, timber and glass. As a result of the short supply, the price of bricks and wood rose drastically. The BCIS General Building Cost Index indicates a rise of 9.6% in Jan-22 compared to the same period a year ago:

During lockdowns exporters switched from air to sea freight seeking lower prices or more dependable journeys at the start of the pandemic. However, this has instead caused increased disruption, inefficiencies and record costs for marine transport.

Many ports have been clogged for months at a time, with ships that need to be unloaded but cannot access the docks. Newcomb observed that ports are dealing with a backlog due to volatility in arrivals, a lack of empty containers, and the relatively small number of ports that can handle 12m (40ft) containers.

The industry has also been experiencing a backlog of construction work. The vast majority of projects were halted during the start of the coronavirus pandemic, thus any stock that businesses could acquire was quickly being used. To add further strain on construction materials, many homeowners embarked on DIY projects during the periods of lockdown as they reassessed their homes and gardens with more time on their hands to make changes.

According to Royal Institution of Chartered Surveyors construction survey for the final quarter of 2021 84% of respondents reported concerns around the availability of materials and 77% of businesses noticed issues with a labour shortage.

In terms of skilled labourers, 65% of respondents saying they had difficulties finding bricklayers and carpenters to deliver projects (although this was slightly less apparent for other skilled trades like plasterers and electricians). That said, the estimate for material costs is expected to jump by a further 9% over the period in question with skilled labour costs rising by more than 7% and unskilled costs by between 5 and 6%.