Global supply chain shortages are causing major hiccups for businesses and consumers alike. Inventory is low, shipping times (and costs) are high, and
inflation appears to be on a steady incline. You’re likely feeling the effects firsthand at places like the grocery store and gas pump. Household budgets are being stretched, and many families are having a tough time finding basic staples that used to be commonplace.
Experts say that the contributing factors behind the supply jam appear to be peaking now, which is certainly encouraging. The problem is that supply issues will likely last well into 2022.
In the meantime, supply gridlock is fueling inflation and hitting everyday folks in a very real way. Let’s untangle supply chain shortages so you can better understand how it could impact your financial life.
What’s Causing the Supply Chain Shortage?
A number of interconnected factors are at play here. The global supply chain was already strained prior to the pandemic, but the crisis acted as a tipping point. Here’s a high-level view of what’s crippling the supply chain.
- Manufacturing issues: The pandemic left many factories understaffed or dealing with temporary closures. Southeast Asia was hit particularly hard as this region is a global manufacturing hub. It effectively strangled inventory on the back end. The good news is that vaccination rates are on the rise and factories are reopening again.
- A global shortage of shipping containers: This has been a major issue—manufacturers can’t export products if they’re unable to load them into container ships. So where did they all go? Part of the problem can be traced back to the beginning of the pandemic, when massive amounts of PPE were unloaded in areas across Southeast Asia and Africa; places that then struggled to return shipping containers. This triggered a worldwide shortage that has caused shipping costs to skyrocket.
- Labor shortages: When shipping containers do arrive at U.S. shores, workers are needed to unload cargo and deliver the products to retailers and consumers. Labor shortages have severely stalled this process. By now, you’ve likely seen nightly news reports showing incoming cargo ships sitting idle for days at ports like Los Angeles and Savannah. The labor force participation rate currently sits at 61.6%; down from 63.3% before the pandemic.
How the Supply Chain Shortage Is Affecting Consumers
The most noticeable problem is limited inventory, especially as we head into the holiday gift-giving season. Toys, electronics, apparel, food and décor may all be harder to come by this year. Starting your holiday shopping early might help increase your delivery window so you aren’t left scrambling.
Beyond that, low supply—which increases demand—is also stoking inflation. This, in turn, is putting even more strain on an already weakened supply chain. Inflation has been a looming concern during the pandemic. The Federal Reserve’s target rate of inflation is 2%, but the annual rate for the past 12 months is currently 5.4%. It’s something that has a direct impact on your purchasing power. Jerome Powell, chair of the Federal Reserve, said in a recent statement that supply chain shortages will likely persist into 2022, sustaining elevated inflation.
One potential solution could be bumping up interest rates. This increases the cost of borrowing, effectively capping the circulation of money. In theory, demand (and inflation) would decrease as a result. There’s talk that interest rate hikes are expected by the end of next year.
What Supply Chain Shortages Mean for Your Finances
A direct result of inflation is that your dollar will go further today than it will in the future. It’s an important consideration for folks who are either approaching retirement or are already retired. Your spending expectations are a key part of crafting a comfortable retirement. Taking on more risk in your investment portfolio is often the recommended antidote to inflation as it can help you keep up with rising prices. In practice, this can mean holding securities like stocks, non-US securities, precious and industrial metals, and sectors that may benefit from rising rates such as financials.
If retirement is a long way off, you might also focus more on non-dollar investments like commodity investing and other alternative investments that look beyond public companies. This all underscores the importance of having a diverse portfolio. Those who were overly invested in consumer staples, for example, might be feeling the sting of the supply chain shortage more than investors who spread out their risk across different sectors.
In truth, we have virtually no control over supply chain issues—but we
do have control over how we respond to it. Inflation is to be expected now and in the foreseeable future until things smooth out. In the meantime, an experienced financial advisor can help you minimize the effects of inflation, no matter what your unique financial situation looks like.
Contact an Opal advisor today to get the personalized advice you need.
