Supply Chain Snags Continued to Drive Up Inflation in December - The New York Times

2022-01-15 08:55:47 By : Ms. Joyce Yang

Annual price changes in December

Men’s suits, sport coats

Annual price changes in December

Living room, kitchen and dining furniture

Men’s suits, sport coats and outerwear

Food at employee sites and schools

Year-over-year change in a selection of categories of the Consumer Price Index

Source: Bureau of Labor Statistics

Persistent challenges in getting goods from factories to customers continue to drive up the price of cars, computer chips, furniture and other products, pushing up consumer prices in December at the fastest rate since 1982.

The Consumer Price Index climbed 7 percent in the year through December, and 5.5 percent after volatile prices such as food and fuel were stripped out, data released Wednesday showed.

The price of used cars and trucks surged 37.3 percent in the year to December, while food grew 6.3 percent and apparel rose 5.8 percent. Increases in the cost of energy and rent also drove price increases.

The Omicron variant is infecting workers at factories, ports, trucking companies and warehouses and leading to further shortages of some products and parts used for making goods. Strong demand from American consumers also continues to elevate shipping prices and fuel price increases for a variety of products.

China is also carrying out sweeping lockdowns to keep the variant from spreading ahead of the Beijing Olympics next month, raising the prospect of more disruptions in the coming weeks for supply chains that run through the country.

Despite some predictions that supply chain woes would dissipate, many businesses appear to have seen little improvement in supply chain problems that continue to raise costs and spill over into higher sticker prices.

“Much of the tumultuous nature of the supply chain that occurred over the entire last year continues, and unfortunately there is not a lot of relief in sight,” said Douglas Kent, the executive vice president of strategy and alliances at Association for Supply Chain Management.

The price to ship a 40-foot container from Asia to the U.S. West coast hit $14,572 this week, down slightly from a peak of more than $20,000 in September, but still nearly a tenfold increase from two years ago, according to data from Freightos Group.

The group’s data also showed that delivery times for ocean shipments from China to the United States stretched to a record 80 days in December, up 85 percent from 2019.

Judah Levine, head of research for Freightos Group, said delays were still a reality for American importers, because of still-surging demand and continued congestion at the ports of Los Angeles and Long Beach, the gateway for many goods from Asia. Recent flight cancellations due to the Omicron surge would further restrict cargo capacity and help keep rates up, he said.

Speaking at the Port of Long Beach on Tuesday, Secretary of Transportation Pete Buttigieg said the record volumes of goods moving through American ports were straining systems that had seen decades of underinvestment, leading to delays and price increases.

But he praised the ports for making changes like extending their operating hours and prioritizing shipments of medical supplies, and said that more investments to expand capacity were on the way.

“There’s no question that when you have a scarcity of access to shipping, you’re going to see upward pressure on prices, and that’s going to part of our challenge when it comes to inflation,” Mr. Buttigieg said.

The pandemic sparked the problem. The highly intricate and interconnected global supply chain is in upheaval. Much of the crisis can be traced to the outbreak of Covid-19, which triggered an economic slowdown, mass layoffs and a halt to production. Here’s what happened next:

A reduction in shipping. With fewer goods being made and fewer people with paychecks to spend at the start of the pandemic, manufacturers and shipping companies assumed that demand would drop sharply. But that proved to be a mistake, as demand for some items would surge.

Demand for protective gear spiked. In early 2020, the entire planet suddenly needed surgical masks and gowns. Most of these goods were made in China. As Chinese factories ramped up production, cargo vessels began delivering gear around the globe.

Then, a shipping container shortage. Shipping containers piled up in many parts of the world after they were emptied. The result was a shortage of containers in the one country that needed them the most: China, where factories would begin pumping out goods in record volumes

Demand for durable goods increased. The pandemic shifted Americans’ spending from eating out and attending events to office furniture, electronics and kitchen appliances – mostly purchased online. The spending was also encouraged by government stimulus programs.

Strained supply chains. Factory goods swiftly overwhelmed U.S. ports. Swelling orders further outstripped the availability of shipping containers, and the cost of shipping a container from Shanghai to Los Angeles skyrocketed tenfold.

Labor shortages. Businesses across the economy, meanwhile, struggled to hire workers, including the truck drivers needed to haul cargo to warehouses. Even as employers resorted to lifting wages, labor shortages persisted, worsening the scarcity of goods.

Component shortages. Shortages of one thing turned into shortages of others. A dearth of computer chips, for example, forced major automakers to slash production, while even delaying the manufacture of medical devices.

A lasting problem. Businesses and consumers reacted to shortages by ordering earlier and extra, especially ahead of the holidays, but that has placed more strain on the system. These issues are a key factor in rising inflation and are likely to last for months — if not longer.

With price increases weighing on the president’s approval ratings, the Biden administration has convened meetings with leaders from logistics firms, retailers, ports and trucking companies to try to overcome these obstacles.

It has promised $17 billion in investments at ports as part of the infrastructure law. But given that most links in the supply chain are owned by the private sector, the administration has found few short-term solutions to the supply crunch.

While much of the United States seems intent on returning to business as usual, at least as soon as the current Omicron surge subsides, further disruptions in other parts of the world could prolong the difficulties for companies and consumers.

China, home to many of the world’s factories, has confined millions of its residents in recent weeks to try to keep the Omicron variant at bay, including in the port cities of Ningbo, Tianjin and Shenzhen.

The country’s zero-tolerance strategy for Covid is leading to the broadest lockdowns since the pandemic began, slowing traffic to some of the world’s busiest ports and sparking concerns about more disruptions this year. China remains the largest supplier of goods to the United States.

“If they stick to their zero-case doctrine, a global supply chain disaster is on the horizon,” said Tinglong Dai, a professor of operations management at Johns Hopkins University Carey Business School.