Driven by strong demand, labor and supply shortages are still contributing to inflation— and still buffeting U.S. businesses — but have begun to ease slowly.
The good news is demand remains resilient in the face of global headwinds. Economists at Bank of America expect consumer spending to remain above the trend through the end of 2023, and while there could be a “partial reversal” in pandemic-era distortions, most demand is expected to remain higher than normal. Meanwhile, spending on goods in the U.S. remains well above pre-pandemic levels, which has kept pressure on retailers to fill orders, according to Flexport’s Post-Covid Indicator.
But COVID-19 era supply chain disruptions are still acute, particularly for small businesses that have fared worse than their larger counterparts. The sector, which accounts for over 40% of U.S. economic activity, has fewer resources to absorb or push back on price increases, and less leverage to pass those costs to customers.
For Joe and Celia Ward-Wallace, the owners of South LA Cafe in Los Angeles, CA, everyday items like gloves and coffee sleeves have been particularly hard to come by.The couple, who stocked up for the Super Bowl game this weekend, told Yahoo Finance they've tried to buy from local vendors.
But “most people are shipping them in,” which has led the owners to modify their branding. It's a "you're lucky if you get 'em kind of thing,” Ward-Wallace explained.
To be certain, supply-chain shortages continue to affect businesses of all sizes — like Starbucks (SBUX), which is facing a shortage of disposable cups. Yet according to a survey from invoicing software company Skynova, small biz is feeling far more pain when it comes to pricing, shortages, and delays.
Skynova's data found that nearly half of the survey's respondents said their business had been impacted by supply chain issues, and two-thirds said they’ve had to adapt in at least one way to deal with the recent headaches. The backlog at Southern California's the twin ports has plagued the American economy – which handles 40% of the country’s containerized imports – has certainly been no help.
We just don't have the manpower to keep up with how fast prices are changing.Nick Johnson, Baltimore business owner
Nick Johnson, Owner of Su Casa Furniture, headquartered in Baltimore, MD and a participant in Goldman Sachs small business survey, is another entrepreneur grappling with inconsistent inventory.
“It's not something that we can rely on, that's sort of a bigger struggle because you want to promise a shorter lead time on a sofa, for instance, you just can't right now,” Johnson said, voicing frustration over delays that result from "missing parts that have to be flown in from China.”
Another concern is soaring inflation. Data on Tuesday showed wholesale prices skyrocketed by nearly 10% on an annualized basis in January, underscoring how price pressures remain a crippling obstacle for small biz and consumers alike.
In fact, more than half of small business owners are passing along those rising costs to their customers — at the highest pace since 1974, according to the National Federation of Independent businesses report. The shifting landscape is making it harder for businesses.
“We just don't have the manpower to keep up with how fast prices are changing,” Johnson told Yahoo Finance.
Some vendors are increasing prices every two weeks due to some Canadian suppliers unable to get a grasp on their steel costs, which in turn causes the finished good prices to go up. And other vendors have fluctuated their surcharges from 4% to 21%, impacting the sales margin, according to Johnson.
“We can't possibly stay on top of every single one of those surcharge changes when we deal with something like 2 to 300 suppliers, each has their own formula and their own process,” Johnson added.
Port woes add to trouble
At the heart of the supply crisis is voracious consumer demand that's driving up prices — and leading to backlogs at ports, where there have been only modest signs of progress.
Total container ship backup sits at 77 on Monday, which is down from the 32 fewer than the record of 109 ships in January, according to the Marine Exchange of Southern California. It’s unclear whether the decline is sustainable, or a temporary fluctuation stemming from factory slowdowns in Asia for the Lunar New Year holiday.
“We've seen that a large number of these ships by count are the smaller vessels by capacity, which take just as long, if not longer to work. The total container count on the water coming across represents about two weeks worth of work for us,” Gene Seroka, executive director of the Port of Los Angeles, told Yahoo Finance Live last week.
At the Port of Long Beach, the Executive Director Mario Cordero, said recently that the hub will continue to increase capacity. Port-terminal operators say the volume has been high, but they’re putting in the work.
“We have the manpower. We are willing to work. We're willing to get all that cargo out,” said Irene, a long shore woman, who spoke to Yahoo Finance last week, but asked that her last name not be used.
U.S. port handling of inbound containers covering the 10 major North American seaports fell by 5.6% compared to November 2021; however, activity was still 5.6% higher than pre-pandemic averages, according to Flexport’s Logistics Pressure Matrix.
Still, congestion remains high by historical standards. Container ships on average are waiting 18 days to unload at the Port of Los Angeles, far higher than before the pandemic, with major firms like Danish container company A.P. Moller-Maersk (AMKBY) expecting supply-chain bottlenecks to continue through June.
Weekly throughput at the Yusen Terminals LLC facility at the Port of Los Angeles has increased 55-60% over the past three weeks, said HJ Yoon, Yusen's chief commerical strategy officer. He added there was still "room to handle more volume," but that was dependent on available workers.
And businesses are increasingly nervous over growing Russia-Ukraine tensions, which could push up energy and overall inflation even more. There would be knock-on effects for other input prices like commodities and metals, experts say.
“U.S. consumers may not feel it as much just because we’re almost self efficient in terms of energy, but European consumers would feel it much more severely, and to an extent they're already feeling it, because Russia has already cut some of the supplies going into Europe,” Anu Gaggar, global investment strategist for Commonwealth Financial Network, told Yahoo Finance.
“Given that Russia supplies key metals and we are already so strained in the supply chain for metals. If those would get impacted, then we could see prices of certain metals, like nickel palladium, rising as well,” Gaggar added.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv
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