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The Ripple Effect of Commodity Shortages

Commodity Shortage
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The current global supply chain crisis is creating a ripple effect of commodity shortages and price increases, impacting a wide variety of industries.

Supply Chain Disruptions

Several forces have come together to disrupt the world’s supply chains, from the pandemic-propelled demand for at-home goods to U.S. manufacturing closures caused by Winter Storm Uri to delays of imports at congested ports. These issues are creating delays and shortages for numerous industries, affecting the prices that companies and consumers pay for goods such as plastic, foam, steel, lumber, and electric commodities. Now more than ever we are seeing how interrelated the supply chains of the various industries are and when one is impacted there are certainly impacts on the others as well.

To fully understand the situation, consider the fundamental law of supply and demand: when demand for a good exceeds supply, prices tend to rise.

Cross-Industry Effects

KPS Global® and all other manufacturers who use raw materials in their products are impacted by this unprecedented disruption. The effects of these supply chain issues are not unique to a specific industry, and collectively, they have an impact on the economy.

For example, the automotive industry is facing a shortage of foam and computer chips, which slows down and even halts production of seat cushions and vehicles.

The furniture industry is affected as companies are receiving about half the foam product that they normally receive to create the pads for the arms and backs of furniture. With no foam to fill furniture, companies are forced to cut production.

Furthermore, the housing industry is influenced as rising costs for lumber are causing new home contracts to be canceled. As the price for lumber increases, the cost of home building is directly affected, which in turn has an impact on the real estate market.

Potential for Inflation

The long-term economic impact of the current supply chain crisis remains unclear. However, this increase in production costs and demand for raw material products could lead to inflation. Commodity prices are said to be a key indicator of inflation, as they respond quickly to general economic shocks, such as increases in demand. More and more dollars chasing fewer and fewer goods.

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