Supply Chains and Labor Shortages

Supply chains and labor shortages are the chief topics among the 40 or so business owners I currently work with. Their anecdotes are widespread and widely varied. I wanted to know why, so I did some research on behalf of you, my business-owner readers.

Supply Chains

A broken foot was diagnosed at an urgent care center. “You are lucky,” said the nurse as she handed over a pair of crutches. “This is our last pair, and all five of our medical supply houses are sold out.”

A technology supplier is simultaneously dealing with the largest order backlog and lowest percentage of order delivery in the company’s history.

supply chainSeveral importers have seen their per-container costs go from $3,000 – $4,000 each to over $20,000. One told me that even after paying a $21,000 cost, he has had a shipment waiting to unload in Los Angeles for the last 79 days.

For Thanksgiving, we served jellied cranberry sauce. Typically we like the whole-berry style, but neither our search at multiple supermarkets nor a shout-out to our guests and friends to “be on the lookout” could find the whole-berry style anywhere. We are all getting accustomed to finding only limited sizes or flavor choices for some of our favorite products on the shelves.

The Ford dealer on the local highway has a pretty empty lot. Where they had about 300 cars and trucks, they now have 30. Their marquee sign no longer offers discounts or deals. It just says “We have trucks.”

Another owner I know bought a used box truck last year for $40,000. It was stolen. The insurance company paid him $75,000 for it using current used-truck values. Now all he has to do is find another truck…

Labor Shortages

A home builder has ten houses with buyers waiting to close. His concrete subcontractor can’t finish the driveways because he is 23 men short on a 30 man crew.

In one of our peer groups, a member complained that he wasn’t getting any applicants for a $12 an hour entry-level packing position. A year ago he typically employed 20 people at that rate. The rest of the owners just laughed at him.

A couple of them said they were still getting some action in the $15 dollar range. (Outdoor labor – no skills required and criminal records unimportant) but most had jumped into the $17-$18/hr. entry-level wage bracket and were still short-handed.

I am also hearing a lot of stories from travelers about restaurants locally, in other regions, and even in other countries limiting their operating hours due to staffing shortages.

Some of the fast-food franchises in my area have (permanently?) shut down their dining rooms. They are using the parking lot to accommodate three drive-through lanes. More volume, fewer workers.

As regular readers of this column know, I like to dig into the numbers. So I embarked on an investigation of my own.

Where did the goods go?

Let’s examine the supply chains and attendant price inflation first. I was perplexed at the economists’ claims that this is a temporary phenomenon. (Let’s just ignore the politicians’ self-serving “not our fault” claims.) Everyone understands that COVID-19 disrupted some production, but why is it showing up a year or so after most factories restarted?

I just read an interesting explanation in an economics article, and the numbers support it.

In 2019, almost 79% of the US Gross Domestic Product was spent on services. The economy was roughly $20 trillion in round figures. That means services should have accounted for between $15 trillion and $16 trillion in economic activity in 2020.

But we shut many services down because of the virus. For months people couldn’t go out to dinner, stay in hotels, or travel. Elective surgeries were curtailed. Haircuts were done at home. How much of that $15-$16 trillion or so was sidelined?

Let’s be conservative, and say 25% of services became wholly or partially inaccessible in 2020. That’s close to $4 trillion, or the entire annual economy of Germany (the world’s fourth-largest.)

Then the government started flushing stimulus money into the system. The numbers available are vague, but the best that I can determine is about $800 billion went out in checks to individuals, and another $800 billion in forgiven PPP loans. That $1.6 trillion would be roughly the entire economy of Canada.

Some of that stimulus money went to savings or to pay down debt, but we will presume for this exercise that half of it was spent. If you can’t spend on services, the only alternative is to spend on goods.

Put together with the idle money from service spending, and we had American consumers trying to buy “stuff” equivalent to more than the entire output of a major G7 economy. Buying wood and metal products, textiles, real estate, automobiles (both new and used,) home improvements, and tech toys replaced spending on services.

Yes, we ran out of a lot of “stuff.” Freight transportation is overloaded with “stuff” trying to get to American consumers. Factories are setting sales records, as long as they, in turn, can get their components and ship their finished products.

I can see why economists say the supply chains will eventually compensate, and hard-goods spending will recede. Unfortunately, I don’t recall when such a slowdown materially reduced prices.

Where did the workers go?

labor shortageAs much as I can see reasons why the supply chains will eventually correct through market forces, my look at the numbers in the labor market convinces me of the opposite.

The Feds haven’t published any statistics on how much supplemental unemployment was paid in 2020, but those programs have expired. Employers who are complaining that “The government is paying people not to work,” are barking up the wrong tree. I don’t think that is the problem.

Quite frankly, one “problem” is the Internet. Advances in telecommunications have enabled a lot of people to choose alternative approaches to earning a living.

ETSY grew from 2.6 million sellers to 7.5 million sellers in the last 18 months. Those 5 million additional sellers may not be online full-time, but it is a component of their income strategy.

Amazon has lots of programs for home-based businesses. You can even set up a store selling other products that are already listed elsewhere on Amazon. I presume you would send your friends to such a store to support you. I see it is an updated equivalent of Amway, except that Amazon lets you control your entire operation, from marketing to financial statements, on your cell phone.

Then there are the gig jobs. According to Fortunly, a financial services site,  some 59 million Americans work in the gig economy. Of these, about 10 million say it is their full-time occupation. Uber, Lyft, DoorDash, GrubHub, and others offer flexibility in scheduling that few “permanent” jobs can match.

A young woman I know drives for Uber Eats. At dinner time, she parks in the commercial zone of an upscale suburban neighborhood where several nice restaurants are located. From there she can claim to be the closest for pick-up at these businesses and has a relatively short run to most delivery destinations. She works from about 6:00 PM until 10 o’clock.

I don’t know how much she makes, but it’s enough for her and her daughter to live on. She can take a night off whenever she chooses and can work extra hours whenever she needs the money. She has no interest in a full-time position, and Obamacare can replace the need for a job with health care benefits.

One more statistic. The Baby Boomers are reaching age 65 at a rate of 10,000 a day, or 3.5 million a year. They were retiring at a rate that was about a million a year below that, in essence adding a million people a year to the supply of skilled workers. In 2020, that number jumped to 3.5 million leaving the workforce. I expect that will be as large a number or more in 2021. (Note: since only about half the population is active in the workforce, the 3.5 million a year in retirements is the equivalent of what we should expect over two years or more.)

Overall, the US workforce has dropped from 164 million in 2019 to about 161 million today. Older, experienced workers are leaving twice as fast as before. Younger workers are choosing alternatives. Almost all of those 164 million worked in traditional jobs. At least 10-15 million of the 161 million don’t.

The vacuum among traditional jobs is sucking up the lower-wage hospitality workers, who are driving the record number of resignations (currently over 3 million a month) to take jobs where employers are willing to both pay more and train more. Many other workers aren’t as interested in the material trappings of success (houses, cars, vacations) and are prioritizing lifestyle instead. They can piece together an income based on internet sales and flexible independent contractor work.

These will continue to be the two major issues for doing business in 2022. I think supply chains will get better, and labor shortages will likely get worse. Just follow the numbers.

This article was originally published on my blog for business owners, Awake at 2 o’clock?

Updated: Feb 23, 2022

About the author
John Dini of The Exit Planning Coach is a member of XPX San Antonio

I have owned companies in manufacturing, distribution and services, along with well over 10,000 hours of coaching business owners. I will understand your business and your objectives.