Shortages, High Prices Likely During Holiday Season

Newswise — Despite President Biden’s announcement of round-the-clock operations at key West Coast ports and expanded operations by the likes of Walmart and UPS – plus pledging further federal government efforts — to alleviate the U.S. supply chain backlog, Maryland Smith supply chain expert Martin Dresner says federal government involvement will be most effective long term — through infrastructure spending.

“The President is proposing making better use of our current infrastructure by increasing working hours and spreading business more evenly throughout the day,” says Dresner, professor and chair of the logistics, business and public policy department at the University of Maryland’s Robert H. Smith School of Business. 

“Although this may help at the margin, there is only limited warehouse, rail and trucking capacity,” he adds. “It is difficult to expand this capacity in the short run. Although the backlogs will eventually work their way out of the system, this may take some time. It is unlikely that the backlogs will be alleviated by the holiday season.”

Dresner, also an associate editor for the Journal of Business Logistics, points to the complexity of the current supply chain problems. Significantly, the pandemic “created increased demand for products shipped from Asia that arrive via container at major U.S. ports, putting pressure on shipping, port, truck and rail capacity.”

In the meantime, work rules designed to curtail the spread of the coronavirus and some port shutdowns reduced the throughput of the shipping industry — especially in Asia, he says. “This was coupled with a decline in the workforce as people retired and quit lower-paying jobs, including transportation and warehousing positions. And, finally, government policies pumped considerable cash into the economy increasing consumer spending, thereby further increasing demand for consumer goods.”

Regarding the federal government’s role in solving the crisis, Biden this week said, “If federal support is needed, I’ll direct all appropriate action, and if the private sector doesn’t step up, we’re going to call them out and ask them to act.”

But Dresner, in response, says such federal support is best channeled through infrastructure spending: “The Biden Administration has plans to spend on infrastructure. In the long run, better infrastructure should improve the functionality of supply chains.”

In the short run, “the Administration should leave it to businesses to work out the backlogs, he adds. “Prices are already adjusting and these prices will cause adjustments in consumer demand. And higher interest rates, should they be forthcoming, will also curtail consumer demand.” However, Dresner cautions that the Biden Administration and the Fed “need to tread a fine line.”

“If interest rates are too low and too much money is pumped into the economy, consumer demand could stoke inflation,” he says. “If rates are hiked too quickly and government spending is curtailed, then we could get pushed into a recession.”

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