Seaver: How do we address ongoing supply chain challenges?
March 4, 2022
Over the past year, consumers and businesses have had to adapt to the shortage in ways our region and our country have not seen in some time.
Signs that read “Due to supply shortages, some items are temporarily unavailable”, or some variation thereof, are common sights in our community. We’ve heard of cafes that can’t find plastic lids, bakers that can’t get butter, and retailers that have too much of one shoe size and none of another. And when these items can be purchased in a timely manner, they are significantly more expensive than they were before the pandemic. You’ve probably all heard similar stories while visiting our city’s small businesses.
All of this is the direct result of ongoing supply chain crisis impacting not just San Jose, but much of the globe.
The term “supply chain” was not a term that many people outside of larger, more global companies were familiar with until recently, and the concept is a relatively new phenomenon. While global trade routes have existed since the days of the ancient Egyptians, the idea of a complex supply chain – the transport of components from various locations with the aim of creating an end product – only emerged ‘in the nineteenth century. While disruptions have certainly occurred before, those of the past two years have been extremely pervasive.
The causes of this disruption are varied and often complex, but the simplest explanation stems from the COVID pandemic. During the first months, governments here and abroad businesses closed to slow the spread of the viruswhich has led to a slowdown in the production of goods and their means of transport, mainly freight transport, rail and trucking.
During the pandemic, consumer habits have shifted to online retail, reducing friction in transactions and accelerating demand. In response to the economic disruption caused by the pandemic, governments flooded the market with fresh stimulus money, which further boosted consumer spending and demand for goods. The result was less supply and harder shipping combined with increased consumer purchasing power in a demand-driven economy, which equated to severe shortages and inflated prices.
In short, the past two years have been a perfect storm for a massive supply chain crisis.
And now ? For starters, small businesses don’t have the resources or the capital that many global companies have to deal with this short-term crisis. But they have ingenuity. Every business has its own supply chain, and small businesses should share best practices with each other on how they have learned and diversified theirs.
On Thursday, March 10, the San Jose Chamber of Commerce is hosting a breakfast to do just that. While we’re working on macro fixes, we can and should share micro fixes.
On the macro side, organizations representing small business interests need to give higher priority to advocacy around the movement of goods to reduce the possibility of future crises. While the movement of people remains economically important, the current situation has demonstrated that the unhindered movement of goods is just as important, if not more so.
There is a role to play at all levels of government. At the federal level, the recently passed infrastructure bill provides $17 billion to upgrade US ports, three of which – Oakland, Los Angeles and Long Beach – carry half of the country’s total container cargo volume. The Port of Oakland unloads 99% of Northern California’s containerized cargo. These container ships hold the coffee lids and tennis shoes our small businesses need and consumers demand, and more investment in the health of these ports is essential.
At the state level, rail and road freight regulations affect another potential bottleneck in the system. Once the goods are moved from the freighters, they leave by rail and by truck. In 2020, the Union Pacific Railroad, which runs through Diridon Station, created and completed more than three million cars in California. And 77.5% of California communities rely exclusively on trucking to move their goods once the rail lines get them to distribution centers. We need to work more closely with state elected officials and agency leaders to ensure these processes are as free from regulation as possible.
Finally, at the local level, city governments such as San Jose can increase warehouse space for storing goods and expedite the use of empty packages for freight containers when needed. All of these systems working together can ensure a smoother supply chain once the current situation passes.
More importantly, we must recognize that now is the time to help solve the crisis that has yet to begin. Once it is underway, as the current situation shows, it is already too late.
Ultimately, the crisis in our supply chains was a shared experience for all of us that will not be fondly remembered. The lingering effects of the pandemic and ongoing security issues in Eastern Europe mean that the current situation may persist longer than we would have hoped. But we have the opportunity to be proactive in minimizing these situations in the future. The small business community should and must lead these discussions.
Derrick Seaver is the president and CEO of the San Jose Chamber of Commerce.
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