Speaker 1: (00:00)
The port of Los Angeles will soon start operating on a 24 hour, seven day, a week basis in an attempt to start untangling the supply chain slow down across the country. The bond administration reached that deal to ease a cargo ship bottleneck at the LA and long beach ports. The two facilities are responsible for almost half of all imports into the United States, but it almost certainly will not be enough to fix the shortages. Plaguing our consumer economy, everything from groceries to computer chips, to running shoes and more have felt the crunch of an international supply chain suffering from pandemic, disruption opinions vary on how long this problem will last. But there seems to be one universal bit of advice from experts across the country. And that is shop early for the holidays. Joining me is SDSU business lecturer, Miro Kopech, and we are a welcome back to the show.
Speaker 2: (01:00)
Thanks Maureen. Glad to be back
Speaker 1: (01:02)
Now. It's still hard to understand why so many aspects of the supply chain have broken down. We hear about manufacturing, shortages, transportation delays, backups at ports, and a shortage of truck drivers. How is the pandemic responsible for all of these things?
Speaker 2: (01:20)
Well, the easy answer is that our supply chain, the global supply chain is based on a, just in time approach. That means goods and services go across borders just in time to be delivered where they need to go. If there are disruptions from natural disasters, hurricanes floods, fires to a pandemic, the supply chain isn't built to take a sustained chunk of time and, and bounce back like it did before. And so you have a lot of different parts of the, of the chain and the dominoes that are falling at different times, which is making it very difficult. For example, aside from all these tankers, you know, waiting to arrive with shipments of goods from, uh, foreign ports that are stacked outside of long beach or Los Angeles, for example, the countries that make these products have closed down at bearing point. So all of a sudden they're catching up and all of a sudden they're sending stuff late and in bulk and, and, and there's a whole cascade of effects. So for example, the containers that are on these ships generally rent for about $3,000 a container from point a to point B, right now, those containers cost $20,000, uh, because of the need for all manufacturers to get their goods and services in time for the holidays. So it's all stacked up at once.
Speaker 1: (02:47)
Something like a shortage of computer chips or cars that go into those containers, that might make sense, but why groceries like diet, soda?
Speaker 2: (02:57)
Well, that's the cans. So the metal that, you know, you know, Pepsi or Coke imports, you know, suddenly has produced in the United States, but a lot of it comes from different parts of the world because the cost structure is much better. And so those countries, those places could have been shut down for a couple of weeks. And all of a sudden, if a factory is not producing parts, that's a major issue. I'll give you a case in point for example, Vietnam. So after the COVID started, there was a big concern that across so many industries, over 50% of the production was being done in China. So American manufacturers were asked, Hey, can I, can we diversify one of the countries that manufacturers had been starting to work with and shifted some production to was Vietnam, Vietnam produces toys, produces, um, apparel items. And they were fairly spared in the first round of COVID in 2020, but in 2021, they got hit hard.
Speaker 2: (03:51)
And when you're talking about, you know, uh, potentially eight, nine, 10% of production, all of a sudden goes offline for a period of time. All of the raw materials that go into that are disrupted they're, they're stuck in different places. And so that's a major issue. So whether it's products that are produced ultimately domestically on a, on a soda line at Pepsi or Coke, or they're produced in a foreign destination, all those different materials come from different places. So the supply chains are very, very sophisticated and it's a lot of moving parts simultaneously. And so, you know, when there's that kind of disruption and the different parts don't come together at the same time. And until that kind of evens out in all the parts of the supply chain work together again, there's still going to be disruptions.
Speaker 1: (04:39)
Are these supply and chain shortages interfering with America's economic recovery?
Speaker 2: (04:44)
Unfortunately, yes. The, the two things that are interfering with the America's economic recovery are the Delta variant that really impacted the, the pace of economic growth. So in the first and second quarters of the year, this year, GDP grew 6.5 and a revised 6.9%. So we really were on an incredible trajectory. The third quarter GDP numbers will be reported in about 30 days, and they are going to really show the same way the labor markets reacted. Uh, you know, we were getting eight, 900,000 new jobs created in the, in the second quarter. And then in July, August, September, the, the pace of, of job growth declined the pace of consumer spending declines. And so, yes, it's going to impact our economic growth. So, you know, the, the federal reserve and the IMF both reduce the forecast, uh, for the third quarter to about 5% or just below that. And we're going to see what's going to happen in the fourth quarter, because this is a really important quarter with respect to holiday shopping. And it goes back now to the supply disruptions.
Speaker 1: (05:45)
So when it comes to shopping this holiday season, what can people expect?
Speaker 2: (05:50)
So the holidays jewelry should not be affected for the most part. Um, you know, gift cards won't be affected, right? Uh, there's going to, for example, toys, if you're not shopping for toys now, uh, you may not have your favorite toy for your child or loved one. If you're going to shop in middle to end of November, there may be shortages of key toys, uh, even for black Friday and cyber Monday, if we think about it, the, the reason toys will be affected anything that's plastic or metal is produced in China or elsewhere. And some manufacturers actually are making decisions not to ship certain toys right now. So any kind of toys that are plastic or metal apparel items, I would absolutely be looking at those right now because the vast majority of apparel items are produced in China, Vietnam, Bangladesh, and all those places have had issues with COVID and supply disruptions. So there's going to be gaps at, at various apparel retailers and then consumer electronics and small appliances, uh, even refrigerators, uh, and, and larger appliances because they contain microchips are also affected. And, and so if you're just going to start early, I would certainly recommend across everything except framing me jewelry to at least browse. And if you see it, and it's something that you really want, I strongly recommend that you get it.
Speaker 1: (07:07)
Now, the CEO of JP Morgan chase says that we're focusing too much on these supply chain issues. And he says, it won't be an issue next year at this time, do you think he's right?
Speaker 2: (07:20)
I do. Yes. Jamie diamond is, is very sharp. Uh, JP Morgan looks at these flows. He has many corporate customers and they see their, their balance sheets and their income statements. Um, I truly believe the same way. You know, inflation has been taking up all of this will kind of play through if, and this is the big gift if this whole Delta variant and COVID really does not bounce back for a third or fourth or fifth time. If we kind of get to have either, you know, a very manageable level, all those supply chain issues should resolve themselves over the next three or four months. The issue is that coming out of COVID, you know, in the first two quarters of 2021, you know, consumer started coming back in big chunks. They had saved money. There wasn't a lot of spending going on during COVID other than essentials.
Speaker 2: (08:11)
And so they're all trying to buy things at the same time, not just in the United States, but in Europe, in Asia, in Latin America. And so you're, you're asking the supply chain to all of a sudden go from zero to 100 in a nanosecond. That's the analogy. And it's just not set up that way. It may go to 0 30, 0 to 40, which is pretty impressive, but the amount of demand is what kind of caused these, the supply chain issues. And so once demand kind of modulates and the supply chains ease as countries are able to meet their commitments on time, things will kind of smooth out.
Speaker 1: (08:52)
I've been speaking with SDSU business lecture, a mural Kopech, Miro. Thank
Speaker 2: (08:56)
You. Oh, you're very welcome, Maureen.
Speaker 3: (08:59)
[inaudible].
