Crippling supply chain issues and labor shortages are still a drag on the nation’s economy, and the Pikes Peak region has not been spared.
Tariffs and ongoing trade friction with China, along with global COVID-19 shutdowns and other pandemic-related complications, have created problems for local industries: driving prices up for cars, all kinds of chemicals, semiconductor chips, lumber, pesticides, farming equipment and countless other sectors.
“It’s difficult to say who is getting it the worst,” said Dr. Tatiana Bailey, executive director of the UCCS Economic Forum, because “supply chain issues are interlinked with labor issues.”
Bailey says that many suppliers in the United States were forced to choose between paying a tariff on an essential part from China or finding a different supplier — but she is clear that the problem isn’t solely a China one, and that trading tensions have been an issue with America’s closer neighbors as well.
“We had a tiff with Europe, and with Canada … a lot of that was lumber-related. So before 2020 and COVID-19, these disruptions in the supply chain were already there,” she said.
She also notes the National Federation of Independent Businesses conducted a recent survey showing “the vast majority of businesses have either a labor shortage, or supply constraints for a physical piece.”
Abraham Schubarth, a sales associate at Colorado Springs Bike Shop, knows firsthand what Bailey is talking about.
“If you don’t have all the parts for a bike,” Schubarth said, “you can’t sell the bike. They can have thousands of bikes partially assembled and only be waiting for one part or two parts — but the whole world doesn’t have those two parts.”
The bike shop has been hit hard with supply constraints, and as of last Sunday, there wasn’t a single bicycle in stock that wasn’t an e-bike.
“At the start of the pandemic, there was a big surge of outdoor activity, not at all limited to bicycles — people were buying grills, patio furniture, fishing gear … but there was a big surge in the demand for bikes. We didn’t order enough, and then were surprised by how many people wanted bikes. So everyone ran out of inventory right away, and we had shortages last summer.”
Schubarth said he gets the sense that major companies are not upscaling production to meet the demand, and instead are predicting demand will peak, then taper off again.
“They don’t want to upscale production and workforce and everything, only to then be met with declining demand,” he said.
Many of the problems Schubarth chalks up to a mix of lower production capacity in Asian factories due to COVID-19, shipping container shortages, and bottlenecks at ports.
One silver lining is that “some of the smaller component companies are getting recognized — since people can’t get anything from the big box companies, smaller ones are getting more sales.”
But Schubarth doesn’t see an end to the situation for at least a year or two, and added that “right now we have a long waiting list of people who want specific bikes.”
TOO MUCH BLAME?
Bailey agrees that production capacity in Asia is a major factor.
“With the Delta variant, many regions are experiencing surges and either deciding to simply shut down production — or they have a lot of workers out, and they’re simply not at the production level they could be,” she said. She added that another potential driver of shortages is early retirees, “people whose stock portfolios did well, so they decided to check out of the workforce early.”
But Bailey cautions against placing too much blame on the pandemic for the shortages.
“One thing not talked about enough is that some of this was pre-pandemic, and that goes back to the Trump administration and tariffs, and the trade war between the U.S. and China — there were issues with intellectual property theft, and really, both sides of the aisle felt China needs to play by the rules.” In short, there is a huge confluence of factors, many of them a long time in the making, and Bailey doesn’t see this ending any time soon.
Barry Biggs, owner of Springs-based PC Brokers, also traces the beginning of his supply issues to before the pandemic.
“There has been a demand for certain components, partly due to bitcoin mining — mainly the components for graphics cards, which are used both for gaming and mining,” he said.
Biggs said everyone needs computers now that so many are working from home. From his perspective — running a business that builds computers — the effects have been severe.
“When you combine the crypto mining demand with the pandemic shortages, [graphics] cards are now selling for two or three times the retail price,” he said.
In some cases PC Brokers has been able to import directly from overseas, as their usual suppliers were limiting the smaller store to one card per month.
Biggs thinks more stateside production could be at least a part of the solution.
“Right now, 85 percent of the fabrication plants making raw chip components are overseas — in Taiwan, Korea, and China,” he said.
“In a perfect world, we would open up fabrication plants in the States,” said Biggs, but he also acknowledges that, despite commitments from Intel and others, building the infrastructure to create chips “is a very slow process, and we’re talking three or four years down the road.”
“We are a small business, and we’ve been in business for 32 years — I have never seen a 24-month period like the last 24 months. These trends were there before the pandemic, but afterwards they got much worse.”
“With trade discussions not going well, in my opinion we have at least another year or two from getting back to an equilibrium,” he said, but he noted that, in the last 90 days, things have noticeably improved.
THE RIPPLE EFFECT
Karen Gerwitz is president and CEO of the World Trade Center in Denver, a nonprofit networking and services organization dedicated to helping international businesses based in Colorado.
“The pandemic started a ripple effect,“ Gerwitz said. “After that you have labor shortages, inflation of raw materials and shipping containers. … There are a lot of costs companies have to endure, and when prices are not stable they have to rearrange their supply chain, find different shipping routes, find a new supplier — these all create impromptu decisions, which never go well.
“Semiconductor shortages are causing major issues, which will impact all the aerospace companies here. Steel and aluminum have been challenging with regard to tariffs. Beer companies are having to pay more for their cans, and Colorado is such a major beer state.”
Gerwitz believes consumer products are among the hardest hit, since manufacturing plants “like those in Vietnam are closing because of the pandemic or have labor shortages. We get a lot of tech things from Vietnam, but we also get furniture — Restoration Hardware has had to cancel a new product line because of closures in Vietnam.”
When it comes to reversing these trends, Gerwitz is hopeful.
“When there are challenges in global or domestic supply, we innovate and find new ways to do things,” she said. “That’s what business and the free market does.”
Currently Gerwitz sees a lot of companies moving manufacturing from China to Mexico, but also thinks increased semiconductor chip production in the U.S. will only help the economy and create good jobs here at home.
“I think globalization works. ... Yes, we have had challenges, but it illustrates the importance of trade — for a time, we couldn’t even get toilet paper and really basic things. ... Global trade is so important for our day-to-day lives,” she said.
Bailey also said, “the long-run solution is indeed going to be switching things around, but at the same time, some things it doesn’t make sense for us to produce.”
Nevertheless, she feels that the appetite for building within the U.S. is strong, and many companies would rather buy directly and use American parts — especially while the memory of not having enough PPE and medical supplies for hospitals is still fresh in the nation’s consciousness.