Causes of the supply chain crisis that could affect Retail on Black Friday and Christmas

Black Friday and the Christmas season are approaching, and international growth forecasts have suffered a drastic drop that could be the perfect cocktail to slow down the economic recovery that we had started to achieve after the very positive vaccination campaigns. The most important problem facing not only retailers, but all types of businesses, are the logistical problems that are producing a bottleneck that has increased the costs of the vast majority of products and impacted in the supply crisis.

But… What are the causes that have led to this situation?

As is always the case, many factors have played a role:

The supply crisis and the bottleneck in the ports

Almost 90% of goods transport is carried out by sea, not only because of the lower cost compared to other means of transport such as aeroplanes, but also because of their capacity to transport hundreds and thousands of tonnes from one place to another on the planet with greater safety.

China, known as the world’s factory, has an extensive network of ports and infrastructures capable of supplying goods to the whole world.

However, following the upsurge of the COVID-19 pandemic due to a new variant, the Chinese authorities have placed severe restrictions and limitations on the transport of goods that are producing a real bottleneck in its ports and harbours, slowing down the whole process.

The ICS (International Chamber of Shipping), the global association of maritime freight transport, warned in September, predicting months ago what in many places was unstoppable. Movement restrictions and lack of vaccines in developing countries were congesting supply chains and ultimately affecting third countries.

This bottleneck situation had been dragging on since March when a ship ran aground in the Suez Canal, one of the world’s busiest shipping lanes, causing months of delays in the arrival of goods.

Congestion in the ports is leading many companies to opt for alternative transport such as air or land transport, creating a domino effect and dragging logistical problems to all areas.

The energy crisis is also affecting retail

The energy crisis is another reason why this Black Friday and Christmas are not likely to end up being as hopeful as we had hoped coming out of last year’s harsh confinement.

Gas supplies were already drastically curtailed at the beginning of the year in the face of a colder than normal spring.

In addition, the economic recovery that was rearing its head in many countries has increased demand for energy, although this demand has not translated into higher energy production, mainly gas.

Moreover, attempts by some of the most polluting countries, such as China and India, to start a green energy revolution have led them to move away from coal as a source of energy (the most polluting medium) and to focus on other sources such as gas as an intermediate step.

The increase in demand for liquefied gas, mainly in China, has also influenced the price of this raw material, which has reached record highs as producer countries refuse to increase production.

In the case of Europe, geopolitical friction with Russia, the main supplier from Eastern Europe, and the conflict between Algeria and Morocco, which have closed the gas pipeline that brought gas across the Mediterranean, have left the EU with little room for manoeuvre.

As it wants to use this crisis to make a stronger commitment than ever to sustainable energy and thus stop being dependent on the external sector.

In the long term, rising energy prices are pushing up the production costs of many products, as well as transport costs, and this ultimately affects the consumer.

Semiconductor shortages

The demand in developing countries for products that until recently were considered a luxury in rich countries (such as smartphones, smart cars or any other digital device connected to the internet) has been a challenge for semiconductor manufacturers.

Rising purchasing power in countries such as China and India has shaken up the international game board, as billions of people now have access to these products.

Chips and their manufacture are the semiconductors that are causing the most problems, mainly due to the lack of raw materials.

In fact, many companies were already warning at the beginning of the year that they would be forced to reduce their production, due to the lack of these basic materials for their operation.

Now that you know the causes, you can’t miss our next article, where we give you the best TIPS to deal with the supply chain crisis.