Perhaps the only aspect of our public life to come through the past 18 months untarnished has been online retailing. Those business have thrived, filling the space that brick-and-mortar outfits suddenly could not, or would not, welcoming millions of new consumers who had previously resisted the lure of online shopping, dining, gaming, entertainment, and so forth. But much of that success may be threatened by this year’s looming crisis, the supply-chain breakdown.
For months now, anyone wishing to buy a car or other vehicle has likely had to wait, and likely is waiting still. The same delays apply to computers, personal and home electronics, major appliances, and so forth, and all because a dire shortage of semiconductor chips means these products cannot be manufactured and delivered.
The shortage of chips is explained as a hangover of last year’s pandemic, but there are other factors too: the rising importance of 5G networking has increased demand for chips, and changes in chip manufacturing have caused shifts in the supplier landscape.
The pandemic introduced new complications, such as chip buyers stockpiling supplies and placing advanced orders – straining the supply of raw materials and manufacturing equipment, impairing the plans of other chipmakers. And now that manufacturing has begun to resume its pre-pandemic pace, inflation has entered the picture, distorting purchasing managers’ ability to plan for near- and medium-term needs.
The need for semiconductor chips may not seem obvious to the plans of more traditional manufactured goods, like metalcastings, but the shortage essentially cancels or stalls production for cars, trucks, aircraft, electronics, and many high-volume products that do involve cast components. General Motors, Ford, and other domestic automakers have put production lines on idle. And the disruption is not only in North America: in September, Honda reported its plants are operating at 40% of capacity due to the chip shortage, and may rebound but only to 70%, perhaps in October.
The chip shortage may continue, but it will morph into other problems quickly, particularly if the supply improves. The back orders will begin to be filled, but rising manufacturing demand will accelerate the already steady inflation, and deliveries of everything will back-up as logistics become strained.
Supply lines are being overstressed already because shippers cannot fill thousands of jobs vacated due to the pandemic. Likewise, customs procedures have been slowed, as new handling standards are enforced. The rising costs of fuel and emissions-containment also impact the cost of deliveries, feeding more inflation.
The sight of 56 container ships anchored outside the Port of Los Angeles shows why all this is an approaching catastrophe for everyone – manufacturers waiting for deliveries of component parts, retailers working to fill backlogged orders, and consumers hoping to get their hands on the cars or electronics or appliances they ordered months ago.
Those idled ships are the emblem of a failing supply chain – and not simply the supply of semiconductor chips. What we see is the failure of a global network built to fulfill a dream of maximum efficiency, with manufacturing capabilities shifted to least-cost suppliers, products mocked-up and mimicked to catch the unwary but needy consumer, and buyers indifferent to any purchase terms except instant availability. We had all that, and now we can see what we’ve got. The supply chain is a wreck, and it is wrecking us.
There have been critics of this global economic restructuring over recent decades, though the complainers were always seen as the losers. They never could offer an effective argument to counter the dream of maximum efficiency.
More recently the proponents of “reshoring” have argued that manufacturing proximity brings the advantage of flexibility and lower delivery costs to both producers and customers, along with the standard benefits to local and regional economies. This message is still being picked up and seems likely to gain salience, other complicating issues notwithstanding.
But what the semiconductor shortage reveals already, and particularly, is how vulnerable we have become by attaching ourselves to a network that promised to satisfy the inhuman desire to gain and control everything.