Food industries experience the economic impacts of the supply chain crisis
Updated: May 2, 2022
By Iris Neubecker
Dane Buckhout spent the better part of two weeks in January trying to find a local grocery store with cream cheese.
“I was pretty confused when I couldn’t find it in its normal spot,” said the College of Charleston senior. “I kept walking back and forth like it would just kind of appear.”
Buckhout even tried a smaller grocery store, Earthfare, with hopes that since it's local they would have it.
After Googling for a substitute, Buckhout settled for a French cheese known as “neufchatel,” with the same texture and taste as the beloved Philadelphia™ Cream Cheese.
“But by the time I ran out of that, cream cheese was back on the shelves,” said Buckhout.
But it turns out that a lot of common goods have been difficult to find thanks to the highly intricate global supply chain that is experiencing major disruptions since the novel coronavirus put an abrupt stop to economic activity in 2020 and then created ongoing issues to this day.
Supply chain ‘crisis’
The global supply chain crisis took shape when the COVID-19 pandemic forced an economic shutdown that ultimately created a lopsided demand for very little supply.
As people were working from home or not working at all, their online buying habits increased. But with factory closures worldwide the product supply could not meet the demand.
Fast-forward two years to the waning months of the pandemic and a different supply chain issue has emerged. With a national labor shortage, many containers of product supply to fill the demand are sitting at ports for weeks, sometimes months, waiting to be distributed.
The crisis was most notable on New Year’s Day, when the United States’ largest seaports - the port of Los Angeles and Long Beach - scrambled as a record number of 105 vessels waited to berth in their overwhelmed logistics facility.
Circling in the Pacific Ocean, some of these container ships waited months before they were able to dock and unload their goods.
“They’re essentially stuck at work,” Alena Mashke, reporter for the Long Beach Business Journal, explained to Santa Monica College’s Public Radio.
A rocky start to the new year was the last thing transportation and logistics workers needed after barely surviving the toll of the pandemic the previous year.
But experts don’t see the problem abating any time soon.
Alan Murphy, CEO of Sea-Intelligence Maritime Analysis, told JOC.com that they expected the West Coast “to continue to experience varying levels of congestion throughout 2022.”
Ten months into 2021, the port of Los Angeles received 9,079,562 Twenty-Foot Equivalent Units (TEU’s), a 22% increase of TEUs since the pandemic - representing a much lower number of containers sitting in port.
With high product demand plus labor shortages, the situation has been a perfect storm for supply chain debacles. And while many are quick to believe the bottleneck is a shortage of goods, in reality the issue lies more in getting the products from point A to B.
“Because there is no space in the yard, there is not that much we can offload,” said Ramon Ponce de Leon last November, referencing the glut of containers sitting in two of Southern California’s largest seaports. Ponce de Leon is union president who represents the 14,000 longshoremen who have been dealing with this supply chain/labor crisis firsthand.
A ship that holds 5,000 cargo containers would typically use five cranes to unload its products efficiently, but when CBS News visited in November 2021, only two cranes were available to unload.
At the same time, transportation costs have also soared, exacerbating the problems. In February 2020, shipping a container from China to the United States’ West Coast cost $1,500. In September 2021, a container cost as high as $20,000.
For the average consumer, supply chain disruptions and the effects of inflation may have been the most noticeable while grocery shopping or dining out as every component of the food production and delivery system has felt its impact.
Labor shortages linger
The economic impact of the novel coronavirus pandemic has weighed heavily on the American people. This is largely due to the fact that it occurred at a time where the U.S. unemployment rate was at its lowest since May of 1969.
Over the next year, roughly 9.6 million Americans lost their jobs as a result of COVID-19, based on a study by Pew Research Center.
These effects did not end in 2020 and are felt across the entire supply chain industry, as labor shortages continue to impact efficiency at logistic facilities worldwide.
Everywhere from manufacturing workers to truck drivers and warehouse employees, labor shortages have been a root cause of the supply chain bottlenecks.
“There's not enough workers at the port to handle the containers, and once they get into the U.S. there’s not enough people to unload them, which is why it's been so congested,” said Meg Cathcart, Customer Service Agent at Bolloré Logistics, one of the 10 leading worldwide groups in transport organization.
Such labor shortages have created an immense amount of stress on logistic workers as they’re having to dispatch shipments weeks in advance to secure workers.
“If you don’t dispatch it you don’t find a trucker, and if you don’t find a trucker, you’re paying for it,” explained Cathcart.
By the end of 2020, the manufacturing industry had lost upward of 578,000 jobs, and there continues to be a labor shortage of 80,000 truck drivers.
“For the trucking industry, [COVID-19] couldn’t have come at a worse time,” said Dr. Kent Gourdine, College of Charleston’s Director of the Global Logistics and Transportation Program.
The food industry, which relies heavily on transportation solutions for “just in time delivery,” the status of the supply chain industry has become its biggest obstacle.
“We had a broadline distributor, which is the one who sells the most common stuff like flour, which is Cisco, they just didn’t have the drivers, so we had to go down to one delivery a week instead of two a week,” said Craig Neubecker, owner of Nosh & Grog Provisions.
Situations like these have made it nearly impossible for those in the food industry to maintain a consistent menu.
“We have had trucks cancel on us,” explained Haig Berberian, owner of Speciality Food Solutions, discussing the challenges his company has faced while trying to get their products in the hands of consumers.
The labor shortage is not only hitting the supply chain industry, according to Berberian, rather it’s affecting all areas of work.
“COVID has affected the entire world, so staffing is an issue everywhere,” he explained. “We are short staffed in our processing plant; we are having a very hard time.”
In order to combat these growing supply chain disruptions, President Biden issued a policy in October 2021 to keep the ports of Los Angeles open and operating 24/7. Biden’s hope for this policy was to give facility workers time to distribute the overwhelming number of containers that were responsible for driving up consumer prices nationwide.
Unfortunately, his plan fell short.
“It’s stupid, because they can’t do that,” said Gourdine. “The truckers aren’t going to go in there, and the places the trucks are taking the containers aren't open, so what's going to happen here? And nothing did happen.”
Among the reasons for growing labor shortages across numerous industries, many have been quick to blame the scarcity on the government's involvement.
“I’m not sure if it’s all COVID related as opposed to economically related, meaning the government's response to COVID and the problem they created making it too easy to work from home,” said Berberian.
And for those in the restaurant industry, many were forced to close their doors under state mandate, often leaving their employees no other option but to find work elsewhere.
“It was about six months before we were able to seat people inside again,” said Neubecker. “And even then, we were required to reduce capacity to 30% then 50%.”
While many do consider the government rather responsible for our current labor shortages, due to issuing state-mandated quarantines forcing workers to stay home, the government has issued multiple relief funds to avoid small business closure while little to no economic activity was taking place.
The Paycheck Protection Program issued by the United States government, supported 51.1 million jobs, which is as much as 84% of all small businesses’ employees during COVID-19.
“We were able to get the PPP, where the government gave us money as long as we used it towards payroll,” said Neubecker. “It helped keep restaurants open.”
Although the PPP ensures employees receive their correct salary regardless of current economic conditions, many restaurants and other businesses in the food industry have had difficulty maintaining a steady profit since March of 2020.
Inflation rates continue to rise
Economists have been quick to deem these ongoing supply chain issues as a major contributor to the rising U.S inflation rate, which is responsible for the price of consumer goods and services, including food, increasing by 6.8% over the past year. With the nationwide labor shortage, increased inflation rates resulting from the current supply chain crisis have taken a heavy toll on those in the food industry.
“It's a chain reaction,” explained Cathcart. “So logistics cost, transportation cost is so expensive, which is making products more expensive, because it costs more to get it over here.”
In October 2021, the annual rate of inflation in the United States hit 6.2%, indicating the highest increase in over three decades.
The U.S. inflation rates have affected everything from labor to transportation and product costs.
“Overall, it's 20% more for average food cost items, and that's just food cost,” Neubecker said. “Labor cost is also way up.”
Such increases in inflation have given restaurant owners no other choice but to spend the extra money.
“The ground brisket that we use for our burgers went from $3.79 per pound back in May of 2020 to $6.11 per pound now since the pandemic,” explained Neubecker.
And even when meat prices were fluctuating, those in the food industry experienced inflation while purchasing other necessary products for production.
“Seasonings have gone up, and boxes have gone up,” said Berberian. “So even when pork was coming down, we couldn’t come down to commence with the market because all of our other costs were increasing.”
To add to an already difficult time for those in the food industry, twenty-one states raised their minimum wage in 2022.
Yet, for Nosh and Grog, situated in the greater Boston area, this wasn’t the first wage increase the gastropub had experienced since the outbreak of the novel coronavirus.
“We’ve had three state mandated minimum wage increases of .75 cents an hour since the pandemic has started, so now our lowest paid employee is $15 per hour,” said Neubecker. “And as things ease up, you can’t go back and give everyone pay cuts, so labor is just a high part of the cost, so prices aren’t going to come down.”
Because of this, restaurant-goers shouldn’t be surprised when they notice an increase in menu prices, as the cost of eating out is 4.7% higher than in November of 2020.
This significant increase, which may have taken many by surprise, is also the result of inflation rates affecting different areas of the supply chain industry.
The truck driver shortage, oil costs, and vessel blockages have caused inflation rates to soar, creating a chain reaction within our economy.
“Our transportation costs have gone up by 30-40%,” said Berberian. “And I think they’ll continue to go up more now that Russia has officially invaded Ukraine.”
Russia’s war in Ukraine has resulted in the United States stopping the purchasing of Russian oil, leading indirectly to an average increase of 17% in gas prices across the country.
And as cargo ships continue to idle in the Pacific Ocean, hoping to dock at one of Los Angeles’ overwhelmed ports, the delay in transportation has cost suppliers, distributors, and now consumers, a fortune.
“When vessels can’t dock, they just sit, and that's an axcine in transportation. Any time you get a truck, a ship, a plane, a railroad, if it's sitting, it’s not making you any money, and it’s just costing you,” said Gourdine.
As of February of 2022, the average cost of shipping a 40-foot cargo container cost $15,900, which is a 318% increase since October of 2020.
And in terms of our current supply chain crisis, this increase in general prices has perpetuated due to a continued scarcity of labor.
“I think that’s one thing people need to realize from the pandemic, inflation isn’t going to become transitory and come down,” said Neubecker. “It's going to stay up because of the labor costs.”
Global economy still feeling the effects
There’s no doubt that China has become one of the world's economic powerhouses of production, as the country currently accounts for a 15% share of global trade, which is 7% higher than the United States contributes.
For years now, other countries have been reliant on China’s industrial economy and low manufacturing cost, as they’re responsible for producing upwards of one-fourth of the world's goo
One could imagine, then, the immense effects COVID-19 would have on the entire global economy, and most importantly, global trade, as over January and February of 2020, Chinese exports declined by 17%.
Such a decrease in Chinese exports was a result of quarantine policies, employees who had contracted the virus, and temporary global export restrictions.
“It starts from COVID,” explained Cathcart. “Factory closures in China; factory closures mean that goods are delayed being produced, and then when they’re delayed being produced that backs up the time in which they can be transported to the port, and then, from the port to the United States or wherever they’re going.”
The growing number of empty containers sitting at ports in the United States has made it even more difficult to transport specific goods in a timely manner.
“To get empty containers back, it’s kind of a contraflow issue,” said Gourdine. “In general, trade moves from west to east. So ideally what you want to be able to do is find loads, in our case in the United States, going back to the far east, but there aren’t that many, and so you end up shipping empty containers.”
According to the World Trade Organization, export bans were responsible for 90% of trade restrictions during COVID-19, greatly affecting those in the food industry relying on being able to import certain speciality products.
“Sourcing the product for our Epico line has become harder, because a lot of that product is imported… in that line we have things like cut oxtail, and cut goat, and cut mutton,” said Berberian.
The delays in the supply chain over the past two years have caused a chain reaction, making it difficult financially for everyone in the food industry, especially restaurants and suppliers, who rely on products only available through international trade.
Yet as this international supply chain issue persists, the question must be asked: Is it likely that the United States will see a push towards more domestic production and away from globalization?
The quick answer is no, according to Gourdine.
“The siren song of low cost is too much. Especially since I think the quality has gotten better overseas in China and India. It’s just too important of a resource to not tap,” he explained.
Increasing labor costs, growing inflation, and our own domestic supply chain issues signal that the United States reliance on foreign production is not going to change.
As the world enters a new normal, suppliers have not been ready to meet the demands of consumers. While improvements have been made, there is still much progress to be had before the supply chain is running as efficiently as we’ve become accustomed to.
“Demand is exceeding supply continuously,” said Cathcart. “That’s what happened and continues to happen, and honestly I don’t see it stopping.”