by UnHerd Staff
Wednesday, 20
October 2021

It’s a demand problem, not a supply chain crisis

The pinch is global, and the cause is misunderstood
by UnHerd Staff

Just in case you still think that the supply chain crisis is a Brexit effect, here’s some evidence from Germany. 

Via Julian Jessop, it’s a survey of German retailers from the IFO Institute. The proportion of retailers reporting delivery problems ranges from 46.9% in the food sector to 88.1% of car dealers to 98.9% of DIY centres. As for bicycle sellers, all of them reported problems. 

That last one is no surprise. Cycling boomed during lockdown. In Britain, America and other countries retailers have reported unprecedented demand.  

It underlines the fact that the global supply-chain crisis is misleadingly named. The problem is much more about too much demand than not enough supply. 

A report for Bloomberg — headlined “supply squeeze” — focuses on the problems at ports around the world. This includes US ports which “have some of the highest congestion rates in the world.” 

One might think that the whole system is breaking down, greatly restricting the supply of imported goods. But that’s not the case. In fact, goods are flooding into America — as the following chart shows: 

Goods imported into the US via shipping containers. Credit: Bloomberg

Imports aren’t just high compared to deep lockdown last year, but also compared to the years immediately preceding the pandemic. 

Of course, the pandemic has had some direct impact on supply. Covid outbreaks have disrupted factories and ports; key workers have been displaced. However this was also the case in 2020 and the first half of 2021. What’s different now is that demand has rebounded — in fact, it’s overshot the levels that have been expected and planned for. 

Excess demand does what it says on the tin — it exceeds supply. But, in addition, the knock-on effects can actively disrupt supply thus making the problem worse. For instance, while demand for shipping is up across the board, it is much higher on some routes than others — like the China-to-America route. To make as many of these highly profitable runs as possible, ships aren’t hanging around to load up with American exports, but heading back empty to Asia. As a result, the distribution of shipping containers is becoming lopsided as they pile up on the American side of the Pacific. 

In a way, this is reassuring. The system isn’t fundamentally broken, it’s just overstretched and unbalanced. The various backlogs will be cleared and other adjustments made — because that is what the global logistics industry does for a living. 

What’s more, the surge in demand is temporary — driven by stimulus spending and media scare stories. Instead of panicking about supply, it might be more useful to worry about what happens to the economy when the money runs out.

Join the discussion

  • Here’s another headline from Germany:
    After several weeks of allowing readers to revel in Brexit schadenfreude, editors have now decided it’s time to break it to the populace: while Brexit may have been a factor in the UK’s problems, Germany has the same issues and it’s time to take them seriously. With 80,000 HGV drivers needed in Germany, “looking at Britain is like looking into Germany’s future”.

  • „it might be more useful to worry about what happens to the economy when the money runs out.“ – the money won’t run out. The political elites have the monopoly to produce new money (common in every political system today), and they produce new money in every size deemed appropriate for their politics.
    So it might not be helpful to worry about what happens when the money runs out, but what happens when such money gets worthless.

  • Well the fact that you feel the need to almost ask permission from left wing cultural commissars to post your views is rather revealing in itself. Rather like various left leading feminists and commentators who, oh so tentatively, object to biological women being erased from political debate and concern. They emphasise how ‘woke’ they are on any other issue except that of ‘trans rights’

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