Supply Chain Breakdown

November 24, 2021 / General
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Feeling stuck between a rock and a hard place this holiday season? You’re not alone! Supply chain disruptions are wreaking havoc on small businesses and large corporations alike thanks to factors that were set in motion back in early 2020. If you haven’t yet felt the effects of this bottleneck, prepare yourself to see them coming soon. Here is a brief overview of what is fueling the breakdown, how it affects your business, and how your insurance program might be impacted in response.


Current Status of Supply Chain


I’m sure we don’t have to inform you of the knot in our supply chain - it’s all over the news cycle and the reason why store shelves are running bare. There are a few factors fueling this holiday debacle including employment struggles and logistic breakdown. Essentially, back when the COVID-19 pandemic was in full swing - brick and mortar businesses closed their doors, pushing consumers into the e-commerce market. With the rapid influx of over-sea orders from the United States, cargo started crossing the Pacific at record rates. However, our nation’s maritime infrastructure was not established with this level of demand in mind. Now that orders are flowing into our ports - primarily the Los Angeles and Long Beach ports in California - operations are slow to keep up with the wave of containers being dropped. At the time of this publication, there are around eighty (yes, 8-0) ships anchored in the LA harbor waiting on space to unload. The timeline of arriving, unloading, and leaving port prior to the 2020 pandemic was only 2 days… now the same process takes over 9 days to complete, leaving the purchaser empty-handed and empty-shelved. Not only are purchasers running out of inventory with 6+ month delays, but they are also being slapped with steep fines from rail yards and shipping ports by way of container “storage fees” - through no fault of their own. Truck drivers queue for hours at port to swap empty for full containers but are being turned away due to space constraints and empty containers are being stored on chassis that are needed to haul full containers. Early last month, the federal government enforced 24-hour operation at the California ports, but many supporting warehouses in the area are not, which has also slowed the cargo flow. With the price of trans-Pacific shipping, coupled with heavy storage fines and dwindling inventory levels, many large and small businesses are forced to recoup their margins by raising sale prices - driving inflation rates to their highest in the last 30 years. Another factor fueling the supply chain breakdown is the current employment crisis. Unemployment is impacting virtually every industry coming off the throes of the pandemic, with the unemployment rate hitting 4.6% as of October 2021. With no one to unload ships, drive and unload trucks, or stock shelves - the “normal” supply chain will be slow to recover and many experts see this problem persisting into the late half of 2022.


Impacts You’re Probably Feeling


This breakdown carries repercussions that reverberate throughout all commerce platforms. A recent survey shows that 45% of small businesses have experienced domestic supplier delays, waiting sometimes up to 45 days for imports, leading many retailers to cancel their orders for seasonal/holiday inventory and displays. We’re starting to see a trend of bigger “box stores” receiving orders sooner than small retailers - destroying supplier and customer relations. This is pushing small businesses to load up on any inventory they can get their hands on which, in turn, has the potential to become an unsellable surplus. Many small business owners are also being drawn away from daily operations to find new suppliers and order what little inventory is in their stock. Your customers are also starting to feel the pressure of this bottleneck by way of increased sticker prices, stock restrictions, and lack of availability for new equipment or repair parts. If you’re a retailer, this is the time to get creative with workarounds in the face of the upcoming holiday season. Are you currently sourcing products locally or within the United States? Shifting to local and domestic purchases could improve shipping speeds. How creative are you with in-store merchandising, especially with scarce seasonal supply? If you haven’t been in touch with your co-op group or territory manager for advice, it’s time to pick up the phone and start triaging.   


Impacts We‘re Feeling in the Insurance Industry


Like we said, this issue burdens all industries, including the service industry. Our agency is starting to see the changes that were hypothesized by industry professionals over a year ago - including a “hardening market” and employment challenges. Due to uncertainty caused by the pandemic, insurance companies have become more strict on the exposures and businesses they are willing to insure. Those that they are willing to protect are seeing meticulous audits stemming from carriers needing to recoup as much premium as possible to re-pad their reserves in anticipation of loss. When loss happens and claims are filed, they are slow to work through the process thanks to a lack of employment in all areas - adjusters, inspectors, remediation contractors, etc. Typically, the longer a claim takes to close, the higher the total cost of the claim is. Inflation is also driving replacement costs for personal property and structures sky high as raw materials are hard to come by and expensive to purchase. Thanks to the supply chain breakdown, we are starting to see an uptick in claims seeking reimbursement for Dependent Property Business Income Loss due to the slow progression of raw to finished materials. With the increase of claim activity across most sectors of business, policy premium rates are responding by shooting upwards - nearly 25-30% for most lines of coverage. These variables set off a chain reaction, and with the industry already facing a “hard market” due to COVID complications, we don’t anticipate lower prices across the board for at least another year. Luckily, our agency has been informed and working to stay ahead of these detrimental changes to the industry to better serve our clients. We are fortunate to partner with over 100 carriers, giving us the opportunity to tap our markets for best price and coverage comparison to try and keep policy premiums in check. We also have a dedicated claims team that focuses on collecting and distributing information between the insured and carrier, identifying reputable restoration contractors, and communicating policy language in understandable terms. Essentially, they see claims through from cradle too grave to ensure smooth claim progression and accurate payment, giving those affected by loss the peace of mind needed to get on with normal operations.


Is There Hope on the Horizon?


As was mentioned before, experts aren’t hopeful for much relief heading into the beginning of 2022 and see these problems lingering into the late quarters of next year. To help ease the burden, private and public companies are starting to get creative in ways to move cargo from the ports throughout the country - including Boeing starting to haul cargo over airspace using jumbo jetliners and developing drop-ship programs. The federal government also recently proposed a new infrastructure bill that will allocate $17 billion to upgrading America’s various ports and dropping the commercial trucking age cut-off to 18 years old, in hopes that we don’t see another break in the supply chain of this caliber. As we slowly start working out the knot in our pipeline and supply levels start to increase, we will start seeing sticker prices fall - hopefully in time for the next holiday season. For now, we encourage shopping and supporting local businesses this holiday season and granting empathy to those who are struggling to get by.


Still buckling under the weight of the upcoming holiday season? Give us a call for more insight into the broken supply chain, thoughts on how to creatively work around the issue, and services we provide to ease your burden.

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