Throughout the past year, consumers and businesses have had to adjust to scarcity in ways that our area and our nation have not experienced in quite some time.
Signs reading “due to supply shortages, some items are temporarily unavailable,” or a variation thereof, are common sights in our community. We have heard from coffee shops that cannot find plastic lids, bakers who can’t get butter and retailers who have too many of one shoe size and none of another. And when these items are able to be procured in a timely manner, they are significantly more expensive than they were pre-pandemic. No doubt you all have heard similar stories as you frequent our city’s small businesses.
All of this is a direct result of the ongoing supply chain crisis impacting not just San Jose, but much of the globe.
The term “supply chain” was not a phrase 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 been around since the time of the ancient Egyptians, the idea of a complex supply chain—the transportation of component parts from various locations for the purpose of creating a final product—did not come about until the 19th century. While disruptions have certainly occurred before, those of the last two years have been extremely pervasive.
The causes of this disruption are varied and often complex, but the most straightforward explanation stems from the COVID pandemic. In the early months, governments both here and abroad closed businesses to slow the spread of the virus, which resulted in the slowdown of both the production of goods and their means of transport, most prominently cargo shipping, rail and trucking.
During the pandemic, consumer habits shifted to online retail, which reduced the friction in transactions and sped up demand. In response to economic disruption caused by the pandemic, governments flooded the market with new stimulus funding, which further enhanced consumer spending and demand for goods. The result was less supply and more difficult shipping combined with increased consumer spending power in an on-demand driven economy—all of which equaled significant scarcity and inflated prices.
In short, the last two years were a perfect storm for a massive supply chain crisis.
So what now? For starters, small businesses do not have the resources or the capital that many global firms do to address this crisis in the short term. But they do have ingenuity. Each business has an individual supply chain, and small businesses should share best practices with each other on how they have learned about and diversified their own.
On Thursday, March 10, the San Jose Chamber of Commerce is hosting a breakfast event to do just that. While we work on macro fixes, we can and should share micro solutions.
On the macro side, organizations representing the interests of small business must place a higher priority on advocacy around the movement of goods to lessen the possibility of future crises. While the movement of people remains important economically, this current situation has demonstrated the unimpeded 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 is providing $17 billion to upgrade America’s ports, three of which—Oakland, Los Angeles and Long Beach—carry half of the nation’s total cargo container volume. The Port of Oakland discharges 99% of Northern California’s containerized goods. Those container ships contain the coffee lids and tennis shoes our small businesses need and consumers demand, and further investment in the health of these ports is essential.
At the state level, regulations around rail and trucking freight affect another potential system bottleneck. Once goods are moved from the cargo ships, they head off on rail and truck. In 2020, Union Pacific Railroad, which runs through Diridon Station, originated and terminated over three million railcars in California. And 77.5% of California communities depend exclusively on trucking to move their goods once rail lines bring them to distribution centers. We must work more closely with state elected and agency leaders to ensure these processes are as regulatory free as possible.
Finally, at the local level, city governments such as San Jose can increase warehouse space for the storage of goods and expedite the usage of empty parcels for cargo containers during times of need. All these systems working together can ensure a smoother supply chain going forward once this present situation has passed.
Most importantly, we must recognize the time is now to help solve the crisis that has not yet started. Once it is underway, as this present situation has shown, it is already too late.
Ultimately, the crisis in our supply chains has been a shared experience for us all that will not be remembered fondly. The lingering effects of the pandemic and the ongoing security concerns in Eastern Europe mean the current situation may persist for longer than any of us would hope. But we have an opportunity to be proactive about minimizing these situations in the future. The small business community should and must lead on those discussions.
Derrick Seaver is the president and CEO of the San Jose Chamber of Commerce.