Schafer: Our supply-chain problems have a simple explanation: We're still buying stuff

In any of the stories you might read about struggling supply chains, you'll be assured that the reason for it is really complicated.

The list of factors is long — from shipping-container shortages to rail-terminal bottlenecks, to shutdowns at manufacturing plants and bullwhip effects (whatever those are).

These things really are happening and they help explain an empty store shelf or "out of stock" notice when online shopping, but even executives might be overthinking it.

It's not that complicated. There remains a low-grade buyers' panic among American consumers and the world of business can't be expected to keep up.

This started with the COVID-19 outbreak in early 2020, when people stayed home to tamp down the spread of the new, deadly coronavirus. They spent their money on stuff to make their bubbles more comfortable, like patio furniture, exercise equipment and home office goods.

Sales of services, like visits to hair salons or airline trips, collapsed.

These behaviors, once just a reaction to the pandemic, might now mark a fundamental shift in how Americans spend their money.

Retail sales increased again in September — by about 15.6 %, excluding cars — according to the U.S. Census Bureau. This continual upward trend is "defying expectations for a pullback amid pervasive supply-chain problems," as one CNBC article put it.

Big-box stores were reliable sources for household essentials early on in the pandemic, as reflected in Minneapolis-based Target Corp.'s sales results. By comparable sales — the best apples-to-apples measure — sales increased in last year's second quarter by more than 24%.

The growth has since slowed, but to just really strong instead of stunning. In this year's quarter that ended July 31, the company's comparable sales climbed nearly 9%.

And it's not just at Target. U.S. consumer spending on goods in this year's second quarter grew about 18%, adjusted for inflation, when compared to the last quarter of 2019, just before the pandemic. Spending on services, meanwhile, is still down.

At the other end of the consumer-goods supply chain are China's manufacturing centers where the massive wave of demand hasn't been a universally great thing.

Scott MacDonald of Edina-based Mac & Mac, Inc. represents manufacturers to retailers, including clients in China. Last week, he walked me through a lot of the problems faced by Chinese managers with 30% or more sales growth.

Materials costs are up a lot, for one thing. A common plastic used in many consumer products costs about 60% more than it did prior to the boom. One of his manufacturers has 115 separate suppliers, and 92 of them have recently raised their prices.

In China, manufacturers are facing electric power outages. Authorities are using power restrictions, MacDonald's clients told him, to reduce the boom's distorting effects on the broader Chinese economy.

It might then be tempting to blame our supply-chain problems on globalization. But supply chains are hardly a new thing.

A manufacturer of any size 40 or 50 years ago likely outsourced work, buying materials, parts and subassemblies from a network of suppliers.

The principles of running an effective supply chain haven't changed that much, but the distances sure have. It's a two-and-a-half to three-week sail from China to the San Pedro Bay container ports in Los Angeles and Long Beach. That big ocean has become a big bottleneck.

As a result, shipping costs have climbed almost out of sight.

Before the pandemic, a Chinese manufacturer would have paid about $5,600 to ship a full, 40-foot-long "high cube" container from China to a customer's loading dock here.

Now, MacDonald said, that will cost around $32,000.

Shipping companies are giving space to those willing to pay more. One of MacDonald's clients had its containers pulled off the ship at a port-of-call partway to America because another company was willing to pay more for the space.

The cost of shipping some products, an artificial Christmas tree in one case, now exceeds the price a company charges customers. That's why many retailers are raising consumer prices. A sofa made by one of Mac & Mac's clients has gone from $699 to $799 to $1,199 next year at one retailer.

Then, there's a cascading series of hassles that have worsened delays, like container ships anchored offshore for weeks with no place to dock. Or Union Pacific's decision to no longer carry shipping containers to Chicago because the railroad had nowhere to stash the empty ones.

And, of course, there was a truck driver shortage even before the pandemic.

American retailers might sound confident that they'll find a way to manage through this because they really think they can, but it's unlikely they've seen anything quite like this before.

This situation reminds me of a story told in a now-classic business book called "The Goal," first published nearly 40 years ago.

"The Goal," written as a fictional page-turner, has to be one of the oddest management books ever published.

The main character of this novel is a plant manager with problems, large and small. He has a brainy friend to advise him. Yet, with his team, he really figures it out for himself. One moment of clarity for the plant manager came while leading a Boy Scout hike.

One scout, Herbie, was slow. Other kids moved ahead and then had to wait. The process — a chain of kids, spread along a trail — had a constraint, and it was Herbie. Eventually, they figured out how to lighten Herbie's pack and they all settled in to move efficiently at his pace.

That's the story executives might want to tell about stressed-out supply chains. There's just a bunch of Herbies popping up, and we know how to lighten the load or work around them.

But what would've happened to this little troop on the trail if it'd been required to do the whole hike at a jog? It wouldn't have been just one kid who struggled to keep up.

That's what we have here now, one supply chain after another being forced to run instead of walk.

Asked what the long-term fix is, MacDonald hesitated a second before answering.

"Retail prices have to go through the roof," he said. "And then the consumer stops spending."