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Lesson summary
Hi there everyone, this is Jeff, and you are listening to Plain English, where we help you upgrade your English with current events and trending topics. If you monitor business news, you know that one thing is trending above all others: the global supply chain. And that is today’s topic. If you don’t know what the heck that is, don’t worry. We’ll cover that in the main lesson.
This is lesson number 414, the telephone area code for Milwaukee. JR has uploaded the complete lesson to PlainEnglish.com/414. The area code isn’t important; I just threw that in there. Anyway, we also have an English expression for you today. That is “stay afloat ,” and I have a clever quote of the week from a famous American author. Let’s dive in.
A tangled global supply chain
The global supply chain refers to the many steps required to produce a product from the raw materials to the finished good. The raw material is like cotton growing in a field; a finished good in that case is a cotton t-shirt. For example, right now I’m wearing a shirt that’s 50 percent cotton and 50 percent polyester, so the raw materials are cotton, polyester, and the ink used to color it.
The supply chain required to produce my t-shirt probably involved a cotton grower in the U.S., who may have shipped the cotton to China, where it was combined with polyester. The fabric may have been treated and processed at one facility, and then sent somewhere else (possibly another country) to be cut and dyed. The dye may have come from India. The t-shirt then likely came back across the Pacific Ocean and somehow made it to my doorstep. The materials would have taken trucks, container ships, trains, and finally a delivery van. Somehow, everyone got paid along the way and I got the t-shirt in the right size and color. If that sounds complicated, imagine the supply chain for a car.
Global supply chains got much more complicated during the 1990s and 2000s when globalization took off. Companies around the world determined that individual parts of a manufacturing process didn’t all have to be done in the same place; in fact, it was better for different parts to be done in different locations. Lower trade barriers, China’s economic liberalization, and reduced shipping costs all helped accelerate the trend.
When it’s working, which is most of the time, the global supply chain is a marvel to behold. Trillions of dollars of value is transported on planes, barges, ocean liners, trucks, vans, and trains. They go in and out of warehouses, factories, showrooms, markets, and stores. A study in 2014 showed that the average car assembled in North America had 30,000 different parts and each part crossed an international border between the U.S., Canada, and Mexico an average of eight times.
The supply chain is not working right now, however. As a result , consumers around the world are experiencing delays in receiving their orders or even shortages of finished goods. The supply chain is called a “chain” for a reason: there are many connected parts. When one link in the chain is broken, the whole system hurts. And when many links are broken, the system really suffers. That’s what’s going on now. Parts of the chain are broken, while other parts are just tangled.
The coronavirus is partially to blame During the worst of the lockdowns, demand for some goods was depressed, while demand for other types of goods soared. Fewer people shopped for clothes and cars during the pandemic. Airlines canceled orders for planes. Rental car companies sold their fleets in a panic to stay afloat . Restaurants stopped ordering equipment for their commercial kitchens. Meanwhile, housebound workers ordered big screens, exercise bikes, speakerphones, and bread makers by the containerful. They also spent a lot of time fixing up their homes.
When the lockdowns were lifted, the opposite happened. Consumers, flush with cash from their savings and government benefits, returned stronger than ever. The problem is that the makers of consumer goods could never have anticipated the rapid change in demand. And many found themselves short of critical supplies right when they needed them most.
Add to that, several additional problems like border controls being much stricter now due to COVID-19; crews on container ships crossing the ocean must undergo rigorous testing and possibly quarantine. Britain left the European Union , so the U.K. and its biggest trading partner are navigating new rules. Many of the world’s shipping capacity was directed toward producing and distributing a vaccine . A container ship got stuck in the Suez Canal , jumbling global shipping for weeks. Europe and China experienced devastating floods. China is facing a shortage of power and they’ve ordered factories to shut periodically, further snarling global production. A major drought in Brazil has led to a weak coffee harvest. Worker shortages mean fewer people are available to drive trucks in America and Britain.
The result is that consumers and businesses alike are experiencing shortages. Shoppers are having a hard time finding durable goods like appliances, cars, and computers; household items like furniture, gardening supplies, and tennis balls; and staples like toilet paper, coffee, and cooking gas. The White House even warned American consumers of the ultimate nightmare: parents might not be able to find the toys their kids want for Christmas.
Public companies recently reported their third-quarter earnings, in which they discuss the money they made and the challenges they face. Home Depot, Walmart, and other big retailers have had to charter their own ships from Asia to America.
Whirlpool, the appliance maker, said delays in getting components are holding up production. Homebuilders said they couldn’t get enough windows, pipes, and lumber to build new houses as fast as they would like. Sherwin-Williams is having trouble getting the raw materials they need to manufacture paint. Nike is afraid they won’t be able to keep up with holiday-season demand for their shoes. ConAgra, a big food manufacturer, said they couldn’t keep up with demand either.
Things are unlikely to get better in the short run. Everyone now knows that there are shortages of goods, so many companies are ordering more material than they need—deepening the problem and perpetuating the cycle.
Ultimate nightmare: Toy shortages
Don’t ask me how they did this, but one stock market analyst calculated that public company executives said the word “supply chain” over 3,000 times in their third-quarter earnings call—far more than in any other quarter in recorded history.
The White House warned of toy shortages. The White House literally warned the American people of toy shortages prior to the holiday shopping season. Toilet paper, furniture, tennis balls, cars, appliances—we can live without that. If we can’t get an oven or a microwave, we can always set a fire in the backyard and cook dinner. But prepare yourself now for toy shortages on Christmas morning.
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