Potential Reasons for Recent Shortages

Recently, there have been shortages for many different products, especially in the last few years since COVID-19. The latest shortage of semiconductors has impacted multiple industries, including the automotive industry, technology industry, etc. These product shortages have been caused by recent labor shortages, port shut downs, and excess demand. Dr. Robert Handfield wrote a great article summarizing these relevant issues and their causes. Roughly, the main reasons for these particular product shortages include the following:

• Preparing for a drop in demand from COVID, but instead realizing an unexpected spike in demand throughout the pandemic
• A difficulty in quickly reallocating resources and capacties
• Temporary closures of plants and ports due to COVID
• Labor shortages in the supply chain

Let's introduce our first problem about recent shortages of semiconductors by starting off with a bit of history. Historically, semiconductor manufacturers seemed to overbuild fabricator plants and overestimate their capacities for capacity planning during successful years, which resulted in greater losses during less successful years. This happened more frequently in the 90s and hasn't happened as much recently. Since then, semiconductor companies have become more careful about capacity planning. As a result, most of them have avoided those greater losses in the last decade that they were used to seeing in the 90s.

In the last few years, semiconductor companies have been increasing capacity due to more demand related to cloud computing, machine learning, and gaming. During the pandemic, there was an increased usage of cloud computing from companies and universities. These pandemic-related spikes in demand for semiconductors weren't included in companies' planned capacity forecasts. Most likely, these companies expected drops in demand during the pandemic, rather than the realized increase in demand for semiconductors. Forecasting capacities during a time that is as turbulent as a pandemic is already difficult enough, but it becomes even more difficult since these same companies need to be extra careful about overbuilding plants, due to costly mistakes made in the past.

In other words, semiconductor shortages seem to be happening because their customers (like automotive companies) expected a reduction in demand due to COVID-19. As a result, the semiconductor fabrication plants reduced capacity and shut down their plants. With an unexpected increase in demand recently, semiconductor manufacturers have started adding another plant. However, this addition requires significant time and billions of dollars in investment, so any addition likely won't happen for another year or two.

Additionally, there have been many temporary port closures due to health and safety protocols for the pandemic. Specifically, major outbound ports, like Yantian, have been shutting down temporarily. These backups can cause many downstream complications and delays, usually requiring weeks to catch up. These shutdowns lead to a major shortage in shipping containers. These shutdowns can also cause delays in cargo ship arrivals, which also contribute to recent increases in container prices and costs of imports from China, as a result.

While all of this is going on, there are also shortages in labor relevant to these industries. For example, demand exceeds job applicants for local delivery drivers, warehouse workers, factory workers, and many other supply chain positions. Labor shortages, especially in the industries related to supply chain, are leading the slowdown of loading cargo at US ports. Again, these slowdowns lead to downstream delays and spikes in costs.

In addition, recent storms like the ones in Texas and hurrican Ida have caused chemical plants to shut down temporarily. For example, chemical manufacturing lead times were delayed for months after these storms. In particular, these chemicals are used to create compounds in many different industries, like auto parts, computers, plastics, etc. With these shutdowns, delays, shortages, and price spikes followed due to the downstream effects of necessary evacuations.

For additional information or more details about recent product shortages related to the pandemic, I recommend reading this article about reasons for recent product shortages. For more details or a brief summary about other supply chain issues related to COVID-19, I recommend reading this article summarizing recent supply chain issues.