What You Need To Know: Supply Chain Disruptions

Surging demand for some products, labour shortages, and extreme weather events have conspired to negatively impact supply chains around the world. What is a Supply Chain?

A supply chain is a system of people, companies, information, and resources that produce and distribute products to consumers (or end users). A supply chain disruption occurs when there is a breakdown somewhere in the supply chain system, which in turn has the effect of impeding the delivery of a product to its intended end user.

Supply chain disruptions are, in part, driving the relatively high inflation we’re currently experiencing here in Canada (and globally). This matters to our local real estate market because persistently higher inflation could eventually lead to rising (or higher) interest rates.

Some causes of Supply Chain Disruptions

1) Uneven Demand

As our economy emerges from pandemic- related restrictions, the demand for many different types of goods has been high and/or is expanding. Where supply has not been adequate to meet such surges in demand, so-called market “bottlenecks” have been created.

Compared to the 12 months from August 2019 to August 2020, when retail spending in Canada did not grow, spending increased by 8% between August 2020 and August 2021. Above-average growth in spending on things like automobiles, vehicle parts, clothing, and jewelery put pressure on supply chains to deliver these products in the elevated quantities that they have been demanded.

2) Labour Shortages

It’s no secret that employers here in Metro Vancouver and across the country have found it increasingly difficult to fill positions in 2021. Notably, 30% of businesses in Canada are experiencing labour shortages (according to Deloitte), and of the 731,905 job vacancies across the country in Q2 2021, 9% (65,905) were in manufacturing, while an additional 5% (32,950) were in transportation.

Because local goods-moving transportation and port activity tend to be labour intensive, labour shortages here in Canada and in other parts of the world are creating headwinds to getting the supply of goods to their intended destination.

Port congestion and already-delayed schedules are resulting in empty containers accumulating in ports and at inland rail depots. This has driven up container shipping costs, which have risen by more than 400% in 2021 alone.3) Climate Change

Extreme weather and natural disasters have together disrupted supply chains. This has occurred through their impacts on both the production and provision of goods.

For example, Canadian forests—especially here in British Columbia— experienced unprecedented drought conditions in the summer of 2021, which led to widespread wildfires. Along with labour shortages, this constrained the availability of wood and wood products at a time when Canadians were demanding lumber at an almost unprecedented rate; in turn, this led to a fourfold increase in lumber costs.

Elsewhere, Brazil’s worst drought in more than a century contributed to soaring coffee prices as supply was pinched, while the supply of sushi rice—two-thirds of which is grown in California—has faced headwinds due to water shortages resulting from drought and wildfires. What lies ahead?

A resurgence in Covid-19 cases, while unlikely to be of the magnitude that could once again materially impact the capacity of transportation and manufacturing workers to produce and move goods, could, at the margin prolong existing challenges.

Furthermore, we were recently reminded of how precarious our ability to move people and goods can be after heavy rains yielded flooding and mudslides and that washed out numerous highways.

All of this being said, given the current sources of our supply chain disruptions (demand-side economics, labour shortages, and extreme weather), the consensus view among economists
is that we will see most, if not all, supply constraints facing the movement of goods ease in the coming months; which bodes well for producers, consumers, and those of us closely following trends in inflation. Our rennie intelligence team comprises our in-house demographer, senior economist, and market analysts. Together, they empower individuals, organizations, and institutions with data-driven market insight and analysis. Experts in urban land economics, community planning, shifting demographics, and real estate trends, their strategic research supports a comprehensive advisory service offering and forms the basis of frequent reports and public presentations. Their thoughtful and objective approach truly embodies the core values of rennie.