Among the potential prolonged impacts of the COVID-19 pandemic is the interruption to supply chains throughout several critical industries. As a result, prices have increased as various goods and materials have become difficult to obtain. A recent Washington Post article noted that the overall consumer price index has increased by close to or above 5% each month since May 2021, reaching a high of 6.2% in October 2021. These levels are more than double the rates seen in the months immediately prior to the start of the pandemic in March 2020.
During a presentation on November 9, 2021, Fox Rothschild attorneys Michael Sweet (Chair, Financial Restructuring and Bankruptcy), Catherine Youngman (Financial Restructuring and Bankruptcy), and Marc Tucker (Litigation and Transportation and Logistics), along with Steven Wybo, a Senior Managing Director at Riveron Consulting, LLC, discussed the implications of the supply chain disruption, the prognosis for 2022 and beyond in key industries notably impacted by supply chain problems, and ways businesses might address supply chain issues over the next year.
Using the automotive industry as a microcosm, the panel identified the following factors as contributing to supply scarcity and increased costs:
- Continued COVID-19 flare-ups and renewed restrictions.
- Lingering semi-conductor shortage. Notably, over 4 million units forecasted to be removed from the system between 2021 and 2023, with normalized production not likely to return until 2023.
- Industry transformation driving investment in new technology. By 2028, nearly 25% of vehicle production will be electric or hybrid.
- Labor scarcity and increased wages.
- Decreased availability of materials resulting in increased costs.
- Shipping logistics challenges resulting in increased costs.
- Inflationary pressures.
- Consistent downward revisions to volume forecasts.
- Unplanned plant downtime.
Turning to the challenges facing the trucking industry, the panel noted that there is a shortage of 80,000 drivers compared to 61,500 prior to the pandemic. This has resulted in transportation companies increasing wages and other incentives in order to attract employees, as well as industry pressure for Congress to lower the driver’s age from 21 to 18. Additionally, there is a lack of new vehicles and maintenance parts (which is tied to the aforementioned auto industry issues), increased fuel costs, and general increased freight demand. This confluence of increased pressures and costs ultimately reaches consumers.
The panel provided the following suggestions for businesses to help navigate supply chain issues over the next year:
- Create a rigorous forecasting process.
- Employ precise inventory tracking, including determining whether stockpiling will create extra revenue over next 12 months.
- Implement labor constraints as necessary.
- Prepare for demand uncertainty.
- Optimize your supply network, including looking into alternative markets.
- Read your contracts and known your covenants and obligations.
- Explore competition to potential target.
- Explore potential growth opportunities created by industry shortages.
Overall, while 2022 may be a continuation of 2021 in many ways, the panel was optimistic for a return to normalcy in supply chains in 2023.
The full presentation along with the slides can be viewed at this link.