U.S. companies are facing deeper supply chain instability and rising costs than they did during the COVID-19 pandemic, as Middle East conflict, extreme weather and shipping disruptions pile up at once. During the pandemic, supply chains simply stopped. Now they keep running, but with far higher costs and much greater uncertainty.
Respondents to a monthly survey released early this month by the Institute for Supply Management (ISM) compared current business conditions with the pandemic period, CNN reported. One respondent described the present situation as a crisis larger and more complex than the one during and after COVID-19. Jeff Voita, chief executive of Dilworth Coffee, a coffee distributor in Raleigh, North Carolina, said his company is dealing with unprecedented disruption as poor coffee harvests in Brazil, tariffs under President Donald Trump, the war with Iran and abnormal weather all hit at the same time.
The early days of COVID-19 and the current crisis look different. In 2020, container ships sat idle at ports for weeks and toilet paper and masks vanished from store shelves as supply chains ground to a halt. Now shipping moves, then stalls, then improves, then deteriorates again in a repeating cycle. Prices rise, fall and spike in turn, with volatility increasing. Jack Buffington, who heads the supply chain program at the University of Denver, called it a bigger problem than COVID-19 and described it as an entirely different issue rooted in energy.
Shawn Brownlee, chief executive of Ravenox, a maker of rope and cord, said supply chains are working but the cost burden and uncertainty are far greater than during COVID-19. Small and mid-sized companies have absorbed cost increases on their own so far, the CEO said, but the pressure is reaching its limit. What businesses want is predictability, the CEO stressed.
The Trump administration has characterized the war with Iran as a temporary shock and says prices will settle quickly once the fighting ends. CNN noted, however, that supply chain disruption and price pressure are unlikely to ease easily even after the war ends. When the United States and Iran signed a memorandum of understanding in June and the Strait of Hormuz temporarily reopened, gasoline fell below $4 a gallon and international oil prices dropped below pre-war levels. The trend has since reversed. As high fuel and shipping costs spread across the economy, core prices excluding energy and food rose last month at their fastest pace since April, and the increase reached service prices, which rarely come back down once they climb.
Diesel prices have doubled since March as the Middle East war intensified and Ukraine struck Russian refineries. Russian restrictions on diesel exports are blocking 12% of the world's seaborne diesel supply. Renewed activity by Yemen's Houthi rebels in the Red Sea and Somali piracy in the Gulf of Aden also persist, leaving shipping lines to continue routing around the African continent. Ryan Petersen, chief executive of logistics platform Flexport, estimated that these factors have cut global shipping capacity by 15% this year, saying he has spent 25 years in logistics and has never seen conditions this severe.
Bad weather has pushed transport costs higher as well. China's Port of Shanghai saw operations disrupted for about two weeks by successive typhoons, and delays continue.
Conditions across the supply chain industry support that assessment. According to shipping analytics firm Xeneta, some carriers resumed the Red Sea and Suez Canal route late last year after nearly two years of detours, but uncertainty over the route persists as CMA CGM and others again withdrew services despite Maersk's declaration of a full return. In a joint survey released in July by ISM and Amazon Business, 71% of companies cited balancing cost and risk as the core of their procurement strategy, but only 45% said they were prepared for supply chain disruption. Some 65% of respondents said they still compile supply chain data manually, exposing a gap between strategy and execution.
U.S. manufacturing indicators have continued to expand despite the turmoil. The ISM manufacturing purchasing managers' index rose to 55.6 in July from 53.3 the previous month, the highest since May 2022. Industry observers note that while factory activity is increasing, the cost and difficulty of sourcing raw materials have in fact grown beyond pandemic-era levels.
